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Late Assistant Secretary of the United States Treasury 

W&itfj an Introduction 





By D. Lothrop & Co. 




yC^ He who said the love of money was the root of 
all evil spoke not with accuracy of the properties 
and functions of this commodity. Evils may grow 
from a love to accumulate wealth in excess, but the 
love of money is in itself as harmless a diversion 
as an ill-conceived passion for a steam plough. 
True money is but one form of wealth, and should 
not be confounded with wealth as if it were the 
only form. 

He who possesses commodities in excess of his 
needs for them, and can exchange them for other 
commodities which he needs, possesses wealth to 
that extent. In no other way can wealth exist. 
Money facilitates the exchange of commodities, 
and, by saving labor and time in the exchange, may 
give to the commodities a greater value than they 
would otherwise possess, — only this and nothing 
more. Wealth can exist without money, and if 
there were no money in the world, wealth would 
still remain as before, though perhaps incapable 
of bringing to its possessor an equal degree of 



The railroad king Vanderbilt may not, and prob- 
ably does not, handle as much money in a given 
time as does his grocer, and yet his wealth is 
reckoned by scores of millions. 

In countries where money is not employed, 
trade is carried on by exchanging direct one com- 
modity for another, of which the following is a 
simple illustration. A farmer has grain which he 
does not need, but he needs a pair of shoes, which 
he has not. To obtain the shoes he is willing to 
part with a portion of the grain, and if he can find 
a shoemaker who has the shoes and is willing to 
part with them for the grain, the exchange can 
readily be effected. But if, when found, the shoe- 
maker, although he has the shoes, does not want 
the grain, the farmer will be compelled to find 
another person who has a commodity which he is 
willing to part with for the grain, and which the 
shoemaker will accept in exchange for his shoes. 
By making this double exchange the farmer obtains 
the shoes. The grain, however, was in fact 
exchanged for them, not the interposed commodity. 
That was used only to facilitate the exchange. 

This method of exchanging commodities is called 
" barter," and to a considerable extent exists in all 
communities to-da}^ Prof. Jevons relates that 
not long since Mademoiselle Zelie, a singer of the 
Theatre Lyrique, at Paris, made a professional 
tour around the world, and gave a concert at the 


Society Islands. In exchange for an air from 
Norma and a few other songs, she was to receive a 
third part of the receipts. When counted* her 
share was found to consist of three pigs, twenty- 
three turkeys, forty-four chickens, five thousand 
cocoanuts, besides considerable quantities of ban- 
anas, lemons and oranges. As the islands con- 
tained no commodities which Mademoiselle needed, 
and for which these products could be exchanged, 
she must have suffered an embarrassment of riches. 
These contributions of the animal and vegetable 
kingdom, transferred to the markets of Paris, 
would, however, have realized for her handsome 
returns ; but meanwhile the turkeys must be fed 
and the fruit will decay. 

Inconvenience and useless labor have ever at- 
tended barter trade, and to avoid them commodi- 
ties have been sought out and interposed, which, 
on account of the universal demand for them, will 
be accepted by any person in exchange for any 
commodity he possesses and is willing to part 
with, knowing that in turn he can again in like 
manner exchange them for any commodity he may 

Gold and silver have for a long time been em- 
ployed by civilized communities as such interposed 
commodities. Neither of these metals, in itself, 
has any mysterious power. Like grain or a pair 
of shoes, each is the product of labor, and has a 


value in exchange for other commodities depend- 
ing upon the relation to it of demand and supply. 
This relation, in case of these metals, is believed 
to be exceptionally uniform and well understood, 
and therefore either metal can be exchanged for 
other commodities at well-known rates. Neither 
metal suffers much, if any, loss from exposure to 
the elements. Equal weights of either, without 
regard to form, have precisely equal values, and 
the relation of value to that of weight in either is 
such that the amount needed is neither inconveni- 
ently heavy nor minute ; and the demand for both 
is universal. For these reasons the two metals 
named are naturally used in effecting exchanges 
of commodities, and Avhile performing this duty 
they are called money. An exchange of a com- 
modity for money, however, but half completes 
the transaction ; to complete it, the money must be 
again exchanged for the commodity needed. 

Bringing money into use, however, the farmer 
exchanges his grain for money, and then exchanges 
the money for shoes or any other commodity which 
he may need. And when the exchanges are fully 
completed he will have no money left. His wealth 
will remain, however, represented by the newly- 
acquired commodities which have taken the plnce 
of the grain. The money has gone to do like duty 
for some one else. 

Viewing money, therefore, as operating within 


its proper functions, we arrive at certain deduc- 
tions, which should ever be borne in mind, viz. : — 

1. The value of gold or silver, like that of 
wheat or any other commodity, will depend upon 
the relation of demand and supply to the metal in 
question. The miner who takes the metal from the 
earth exchanges it for other commodities at the 
best rate he can obtain. If the outlay and labor 
expended in obtaining the metal will not yield an 
amount of other commodities equal to, or greater 
than, an equivalent amount of outlay and labor 
would yield in other industries, mining operations 
will be abandoned for other pursuits, until the 
demand for the metal with the diminished produc- 
tion will increase its exchange rate, so as to render 
mining operations as profitable as other industries. 
On the other hand, should the product of mining 
operations on the whole prove more remunerative 
than that of other industries, less remunerative 
industries will be abandoned for mining, until the 
increased yield of metal will lower the exchange 
value of it to a point where other industries will 
be as profitable as mining. In this way the prod- 
ucts of our mines arc governed by natural forces, 
and money can have no artificial value. 

2. There can be no such thing as "cheap 
money." In performing its functions, money will 
be exchanged for other commodities at just such 
rate as the owner of the other commodities is will- 


ing to part with them for it. He can be depended 
upon not to exchange them at a lower rate than he 
is obliged to. A decrease in the exchange value 
of money means a corresponding increase in the 
value of the commodities for which it is exchanged ; 
otherwise silver would be cheaper money than 
gold, and copper cheaper than silver, a relation 
which never has existed and never will. Conse- 
quently, in itself, one metal is just as cheap as 
another for money, and we need select for that 
purpose only the one which best suits our con- 

3. Money not being wealth, the amount of it 
in circulation will naturally be just the amount 
needed to effect the exchanges of products for 
which it is employed, and no more. It can be 
used for no other purpose, and everybody will get 
rid of any excess of it as soon as possible. If by 
any artificial restraint an excess of it is kept in any 
community, the owners of commodities therein 
will not part with them for it except at rates which 
will compensate them for holding a commodity 
which, being no longer of use as money, becomes 
unproductive wealth. Consequently prices of 
commodities, in such an event, will be higher until 
the restraint is removed and the surplus money 
allowed to flow where it is needed. 

4. Money will be plenty in localities where 
commodities are cheapest. A purchaser of grain 


in New York notes that for the same amount of 
money he can procure in exchange therefor more 
wheat in Milwaukee than in Chicago. He there- 
fore buys in the former market, and sends his 
money there in exchange for his purchases. Other 
dealers will do the same, and money will be plenty 
in Milwaukee and scarce in Chicago, until, on 
account of the increasing demand, holders will 
raise the price in Milwaukee until grain can 
be purchased elsewhere as cheap, or cheaper, than 
in that market, when the money will flow else- 
where, and prices will again be lower. Money 
may, therefore, be trusted to flow towards the 
cheapest market, or where prices are lowest, and 
to shun the dearest markets, or where prices are 

5. A " tight " money market results from too 
high prices of commodities compared with prices 
ruling in other localities, and does not result from 
any lack of money. When prices are lowered, 
money will flow in. Increasing the amount of 
money to relieve a market only aggravates the evil 
it is intended to cure. There being no use for 
more money, the excess must lie idle as unpro- 
ductive capital, or at considerable expense be 
shipped away as bullion like any other commodity. 

There is another use for money which has not 
yet been considered — its use as a standard of 
value. Gold and silver, possessing a desirable 


uniformity of value in exchange for other com- 
modities, have long been employed throughout the 
civilized world as standards by which the exchange 
value of all other commodities is expressed. The 
two metals, however, vary from time to time in 
their respective exchange value as to each other, 
and consequently but one metal at a time can be 
considered as a standard of value, without causing 
confusion. Thus, at a certain date one ounce of 
gold or sixteen ounces of silver can be exchanged 
for twenty bushels of wheat ; but at another date 
one ounce of gold may purchase twenty-one 
bushels of wheat, while sixteen ounces of silver 
will still purchase but twenty bushels. Whatever 
causes operate to cause this disparity, it is evident 
that only confusion of terms can result in attempt- 
ing to express values at the same time in two 
standards, having no fixed relations to each other. 
Money used simply as an interposed commodity 
to facilitate exchanges is man's best friend. With 
noiseless action it takes from man the products of 
his labor, and in exchange returns to him the 
products of all lands and climes, and when its work 
is accomplished modestly withdraws. It asks for 
no aid in doing its work ; no subsidy, no legisla- 
tion or monetary conferences to regulate its action. 
All it ever asks is to be let alone. But man will 
not let it alone ! He needs must attempt to regu- 
late it, and so it gets within the domain of legisla 


tion, where it does not belong, find brings no end 
of troubles. Without an}' excuse, legislation has 
debased it, substituted inferior commodities for it, 
interposed artificial barriers to its circulation for 
the alleged benefit of commerce, and by solemn 
proclamation declared it to possess a value which 
it had not. 

In no country has there been more interference 
with the operations of money than in the United 
States of America. The colonists debauched it, and 
then drove it from them to make room for unhappy 
substitutes. Since the adoption of the Constitution, 
changes in the weight and fineness have twice been 
made, and one metal has been maintained for years 
at a fictitious valuation to encourage mining in- 
dustries, and paper promises to pay have, by law, 
been declared the equal of the highest rated metal. 
In consequence of such and other legislation there 
is afloat a large assortment of money of various 
values and effect. 

Were Mademoiselle Z61ie to give a concert to- 
day in the capital city of this country, its receipts 
would rival in picturesque confusion those of her 
concert in the Society Islands. When counted, there 
would be found gold coin, silver coin, with its three 
kinds of dollars; nickel coin, bronze coin, copper 
coins, United States notes, silver certificates, gold 
certificates, bank notes of two kinds, and perhaps 
fractional notes, — and all these kinds having a 


common unit, the dollar, but bearing to each other 
no necessary relation of value, but all in effect 
redeemable by the government in gold coin at 
their face values. Transferred to the Bourse of 
Paris these several kinds of moneys would also 
have a value, but it could hardly be computed 
even by a member of the French Ac-ademy. The 
explanations offered for the existence of these 
motley issues have been so varied, that few people 
know or appear to care to know, what the issues 
are for, or what powers they possess ; and so be- 
fogged has become the whole subject, that even 
the Justices of the Supreme Court do not appear 
to know a dollar when they see it. 

The diverse properties which have been given 
money in this country, the unnatural power with 
which some of it is legally endowed, and the false 
position in which other portions of it have been 
placed, can but bring disturbances sooner or later. 
Already in the financial horizon appear threatened 
clouds, and to the practised ear comes the prelude 
muttering of the brewing storm. As legislation 
has brought about the threatened disaster, to legis- 
lation we must turn for relief. What shall the 
relief be? 


Introduction by Edward Atkinson xv 

I. Early Colonial Money . 1 

II. Colonial Mints 8 

III. The Original Silver Dollar 11 

IV. Paper Issues 14 

V. Revolutionary Issues 23 

VI. Cui Bono ? 28 

VII. Money of the Confederation 33 

VIII. The Money of the Constitution .... 37 

IX. Wild-Cat Currency 42 

X. The Treasury Cornered 53 

XI. The Second United States Bank .... 60 

XII. United States Notes 67 

XIII. Additional Issues 00 

XIV. Fallacy of Legislation 99 

XV. National Bank Issues Ill 

XVI. Contraction 127 

XVII. Resumption 146 

XVIII. The Supreme Court 157 

XIX. Gold Coin and Certificates 171 

XX. The Silver Dollar 197 

XXI. Circulation of the Silver Dollar . . . 221 

XXII. Monetary Conferences 227 

XXIII. The Trade Dollar 247 

XXIV. Other Moneys 258 

XXV. The Par of Exchange 205 



Having been requested to write an introduction 
to the following treatise on " Money in Politics," 
by J. K. Upton, late Assistant Secretary of the 
Treasury of the United States, I cheerfully do so 
because I have found the work to be very tho- 
rough and complete, and of the utmost value, both 
with respect to the history of the past and to the 
policy of the future. 

It gives, in my judgment, the best record of 
legislation in the United States yet presented in 
regard to coinage, to legal tender acts, and other 
matters connected with our financial history. 

It shows in the most conclusive manner the 
futility of all attempts to cause two substances to 
become, and to remain of the same value or esti- 
mation, by acts of legislation. 

It gives a true picture of the vast injury to the 
welfare and to the moral integrity of the people of 
this country, which ensued from the enactment 


of the acts of legal tender during the late war, 
whereby the promise of a dollar was made equal 
in the discharge of a contract to the dollar itself. 

It shows that this mode of collecting a forced 
loan was the most costly and injurious method of 
taxation which could have been devised. 

It proves in the most conclusive way, the injury 
which will surely come when by present acts of 
coinage and of legal tender, our gold coin has 
been driven from the country, and our standard 
of value becomes a silver dollar of light weight 
and of uncertain value. 

The reason given for this dangerous interference 
with the natural laws which control value, and for 
subjecting the whole business of the country to 
uncertainty and depression is, that " the silver pro- 
duction of the country must be sustained." 

The annual value of the silver product is about 
$40,000,000 — in gold. 

The production of the hen 5~ards of the United 
States, according to the census statistics, was, in 
1879, 456,910,916 dozen eggs, and, if hens have 
increased in the ratio of population, it is now 
500,000,000 dozen, which, at only ten cents a 
dozen, would exceed the value of the product of 
the silver mines. 

It would be vastly more reasonable for Congress 
to order the compulsory purchase of two million 
dollars' worth of eggs per month, "in order to 


sustain the hen products of the United States," 
than it is to bay two million dollars' worth of sil- 
ver; because the esr2rs could be used, or else 

' CO 7 

•would rot, while the silver cannot be used, and is 
expensive to store and to watch. 

This book will prove to the mind of every think- 
ing man that, if we persist much longer in sustain- 
ing the acts of coinage and legal tender which now 
encumber the statute book, our national credit will 
be impaired and all our working people, whose 
wages arc paid in money, will be subjected to the 
most injurious form of special taxation which 
could be devised ; it proves that a considerable 
portion of their wages will be taken from them 
under due process of law without power of redress 
on their part, while the rich and astute advocates 
of the present system will reap wealth which they 
have not earned by taking from the laborer a part 
of that which is his rightful due. 

It may be said now of the legal tender currency 
which was issued during the late war, as it was 
written of the Continental currency of the Revolu- 
tion. "If it saved the State, it impaired the 
morality of the people ; it polluted the equity 
of our laws; it injured the fortunes of those who 
had the most confidence in it ; it destroyed respect 
for the courts ; " and although it did not in this 
most recent case inflict the maximum of injury, as 
it did in the Revolution, it may yet be said that 


it did more injury to the material prosperity of the 
country than all the arms and arts of the enemy 
combined enabled them to compass. While it 
destroyed the fortunes of many, it made the few 
rich richer and the many poor much poorer. 
Except for its malignant influence the nation 
would to-day have been substantially free from 
the burthen of any national debt whatever. 

The money cost of the war was a little over 
four thousand million dollars, measured partly in 
coin and partly in paper, and it could easily be 
proved that at least one third part of that cost, or 
a sum equal to the present national debt, was im- 
posed upon the country by the depreciation of the 
legal tender notes. 

This book, written by one whose official posi- 
tion gave him the clearest insight in respect to the 
working of the acts of coinage and of legal tender, 
and also of the banking system of the United 
States, may be of inestimable value because the 
chief dangers to which the country is now sub- 
jected are the present dangerous statutes still 
unrepealed, construed under the decision of the 
Supreme Court of the United States in the last 
legal tender case, — a decision rendered by judges 
whose opinions could be predicated upon the po- 
litical party to which the majority of the court 
are assumed to belong. It may not, perhaps, be 
called a partisan decision ; but, with hardly an ex- 


ception, the opinions of the judges in these legal 
tender cases have been made on party lines. 

It is singular that the attention of very few per- 
sons is ever drawn to the fact that in international 
commerce there is no statute of legal tender, and 
cannot be ; hence that all international transac- 
tions are settled by the weight of the various 
metals, chiefly in the pound sterling, which is 
simply a name for a given number of grains 
of gold. 

It would be very interesting and instructive if 
some one learned in the law would investigate and 
explain the first conception of an act of legal tender. 

Its modern purpose is twofold. First, to per- 
petuate the evidence that one party to a contract 
has made an effort to comply with its terms ac- 
cording to his understanding of it. This could bo 
accomplished in many different ways. The second 
function of a legal tender act is the one which has 
been perverted by legislation and by the recent 
decision of the Supreme Court, even to the full ex- 
tent of a declaration of the court that it is within 
the power of a legislative body to coin paper into 
money and to make the promise of a dollar, carry- 
ing no obligation for its performance, equal to the 
coin itself in the discharge of a contract. 

This is perhaps the logical outcome of a series 
of acts of legislation which must have originally 
been born in fraud and bred in corruption. 


This function of an act of legal tender must, in 
the nature of things, have originated in the act of a 
despotic power, conceived for the purpose of forcing 
the acceptance of a debased coinage in the liqui- 
dation of debts, in order to steal the property of 
the people without their knowledge. 

I commend this book to the careful study of 
everyone who takes an interest in honest finance. 

Edward Atkinson. 

Boston, Sept. 25, 1884. 


/ *> 





The early settlers of this country brought with 
them from England a considerable amount of silver 
coin, and, following the practice of the mother 
country, expressed the values of commodities and 
kept their accounts in pounds, shillings, pence, 
and farthings. 

It is well known that the standard pound in 
England was originally a certain bar of silver kept 
in the Tower, representing a pound in value, as 
well as a pound in weight. As a pound in value, 
it was divided into twenty parts, called shillings, 
the shilling being divided into twelve parts, called 
pence. As a pound in weight, it was divided into 
twelve parts, called ounces, each ounce being di- 
vided into twenty parts, called pennyweights. A 
pennyweight was therefore, both in value and 
weight, 2!^ part of a pound. 

King Edward III., however, being pressed for 
means to pay his royal debts, directed that a 



pound of silver should be coined into twenty-two 
pieces, .and declared by royal proclamation that 
each one of these pieces should be called a shilling, 
and should be accepted as such in payment of the 
debts of the crown as well as in payment of pri- 
vate debts. In this way there accrued to the royal 
revenue two shillings on every pound thus minted ; 
and the royal counsellors imagined that they had 
discovered a very ingenious method by which a 
revenue could be obtained without taxation, and 
without defrauding any one. But as silver, like 
other commodities, had a certain value of its own, 
the reduction of the weight of the shilling caused 
a corresponding increase of prices ; and the sub- 
jects of the king, finding that through some mys- 
terious agency their property had apparently 
increased in value, made no complaint of the 
debasement of their coins. 

The successors of Edward III. repeated this 
robbery again and again, until Queen Elizabeth 
directed that fifty-eight pieces be coined from the 
pound sterling, or sixty-two pieces from a pound 
troy. By this time royalty had reduced the shil- 
ling to about one-third of its original value, and 
yet by edicts and proclamations had made each 
one of the same power in the payment of debts as 
the original piece. The shilling had now, how- 
ever, become so small that the subjects of the 
queen saw there was cheating somewhere about 


the board, and they put a stop to any further 
reduction of the coin. 

These shilling pieces were the coins which the 
early settlers brought to this country. 

The history of our currency is little else than 
a repeated story of the interference of the State 
with the functions of money, and of abortive 
efforts to counteract natural monetary laws. 


New England began the interference. Explor- 
ing parties of the Massachusetts colony found 
living on the shores of Long Island a partially 
civilized community of Indians. There was among 
the natives a division of labor: some of them cul- 
tivated maize, others fished, others hunted, and a 
considerable number living along the sea shore 
were engaged in polishing the shell of the clam 
and of the periwinkle, which they traded for the 
products of the field and the chase. The shells 
were used as ornaments, and had a well-known 
exchange value for other commodities. One black 
shell was about equal to two white ones. They 
were called "Peag," and they answered for money 
among the simple natives, as did gold and silver 
among their civilized invaders. There was no limit 
to the number of these shells which might be pro- 
duced ; their possessors traded them for furs and 
other artieles upon the best terms that could be 


obtained ; and they circulated for several hundred 
miles inland. Anions* these Indians, ignorant of 
the laws governing circulating medium and rates 
of exchange, the black and white Peag circulated 
together without the aid of compulsory legislation 
or monetary conferences. If an Indian sold furs 
for two fathoms of black Peag no law compelled 
him to accept in satisfaction of his contract four 
fathoms of white. 

But the white man came, and by statute made 
Peag a legal tender for twelve pence in payment 
of debt — and then counterfeited it. Upon thus 
being made a legal tender these shells became pos- 
sessed of a new value, and subject to new laws. 
Lustreless and half-polished shells being worth as 
much as any for paying debts, a deterioration of 
Peag at once commenced. In 1648 the Massa- 
chusetts colony found it necessary to pass a law 
which provided that only such Peag as was un- 
broken and of a good color should pass as 
money. Peag became so bad, however, notwith- 
standing the reformatory law, that the following 
year the colony treasurer was forbidden to take 
it, and even the inhabitants began to reject it. 
Again the law came to the rescue and ordered 
that Peag should be a legal tender for forty shil- 
lings — the white at eight, and the black at six for 
a penny. In this way Peag became clothed with 
all the legal finery which has ever adorned the 


currency of civilization. Not only was it a legal 
tender in payment of debt, but there was a " fixity 
of value " between the black and the white. Here- 
after, if it would not work satisfactorily, the law 
was not in fault. But Peag was perverse, and, just 
as great results were expected from it, it wholly 
disappeared from circulation, leaving the law- 
makers to look elsewhere for a circulating medium. 
They did not look long. 


In 1641 the General Court of Massachusetts made 
corn a legal tender in payment for all debts which 
should arise after a time prefixed. The exchange 
rate of corn varied so much that it brought an end 
to credit transactions — no man being willing to 
risk future values thereon — and trade was in con- 
sequence hampered or broken up. Exchanges, 
however, necessarily continued to be made, and 
so a barter currency was established, driving the 
legally-clothed corn from the circulation. 

In 1049, disputes arising about the payment 
of taxes in this currency, three appraisers were 
appointed to regulate the values of commodities. 
Of course if a cow was equivalent to so many shil- 
lings of taxes, the lankest of the herd would be 
proffered for their payment ; and consequently the 
collections of the tax-gatherer comprised an assort- 
ment of lean and lank kine, compared with which 


those in the famous vision of Pharaoh would have 
been a goodly sight for a county fair. The col- 
onial government was obliged to keep these cows 
until they could be disposed of in the ordinary 
course of business. It would be curious, says 
one writer, to know how much, without giving 
milk or increasing in weight, a cow thus received 
for taxes could consume of government rations. 
To prevent evasion of this sort, in 1658, it was 
ordered that no man should pay taxes in lank 

The Massachusetts Puritan was not alone in 
such questionable transactions. As early as 1618, 
two years before the Puritans arrived in New 
England, Governor Argale, of the Virginia colony, 
had ordered that all goods should be sold at an 
advance of 25 per cent, and tobacco taken in pay- 
ment at three shillings per pound and no more nor 
less, on a penalty of three years' servitude to the 
colony. Notwithstanding this law, in 1623, arti- 
cles were rated in both corn and tobacco, thus : 
loaf sugar at Is. 8d. in corn, or 2s. 6d. in tobacco ; 
and other articles in like manner — excepting the 
young women shipped from England to become 
wives to the planters. These last commodities 
appear to have been invariably rated in tobacco — 
the price of a wife at first being 100 pounds of 
tobacco ; but the lucky investors must have cornered 
the market, for the price soon after advanced to 


150 pounds — but possibly the increased price was 
paid in tobacco of damaged quality. 

A distinguished writer of that period intimates 
that it did a man's heart £Ood to see the gallant 
young Virginians hastening to the water-side when 
a ship arrived from London, each carrying a bun- 
dle of the best tobacco under his arm, and taking 
back with him a beautiful young wife. But, as 
even a gallant young Virginian could hardly 
" hasten " with a hundred and fifty pounds under 
his arm, it is probable he took along only a small 
portion of the consideration as an earnest, — thus, 
in fact, buying his wife upon a margin. 

All the colonists were anxious to retain silver 
as a circulating medium, and their trade with the 
West Indies brought in considerable silver coin ; 
and the buccaneers spent a good portion of their 
booty among them. Had no law been enacted 
making inferior commodities a legal tender, silver 
would have circulated, being vastly superior in 
every respect for money. 




As another expedient, in 1652, Massachusetts 
established a mint at Boston and proceeded to 
coin shillings, sixpences, and threepences ; and 
the law forbade their exportation on penalty of 
forfeiting all visible estate. On one side of the 
coin was a tree surrounded by the word " Massa- 
chusetts ; " and on the other " New England " 
and the year of our Lord, and the figures XII, 
VI, or III to denote the denomination. As the 
right to coin money was a doubtful prerogative of 
the colonies, the date of 1652 was not changed, 
though the pieces continued to be coined for thirty 

The English shilling at that time contained by 
law twelve pence — it being of such weight that 
sixty-two of them, \± fine, would make just one 
ounce, or 420 grains troy. The Massachusetts 
law enacted that the shilling to be coined should 
contain ten instead of twelve pence, a difference 
in value of twenty per cent to start with. But as 
the mint master kept fifteen pence out of every 



twenty shillings, as a coinage charge, the value of 
the new shilling was so reduced that Gs. 7d. of this 
currency was worth but 5s. 2d. of English sterling, 
or 22 per cent less, admitting it to be of the 
weight and fineness required by law.* The Eng- 
lish mint, moreover, declared the coin was not 
of even weight and fineness, and for this reason, in 
its exchange for sterling, it suffered a reduction 
of 3 per cent more, thus making it 25 per cent 
less than sterling. All this was done by the govern- 
ment that the coins might remain in circulation. 
But they were exported, nevertheless, because 
there was in existence at that time a cheaper way 
of paying debts than with even the silver ten 
pence made by law equal to twelve, and the 
New England Puritan has an unearned reputation 
for sagacity if he can be wheedled by any sub- 
terfuge into paying more for an article than is 

Nobody was benefited in the least by the 
coinage of this money. In proportion as the 
value of the coin was reduced, the merchants 
raised the coin price of their goods. Confusion 
in trade and accounts were, however, introduced, 
and injustice done to many individuals. Then, as 
now, many believed that a shilling was a shilling 
so long as it bore the government stamp to that 
effect, regardless of the amount of silver it con- 

* Sumner's History of Currency. 


tained ; and nobody could understand why the 
coins did not circulate. 

Not to be outdone by the New England Puritan, 
the Catholic Assembly of Maryland, in 1662, 
besought the Proprietaries "to take orders for 
setting up a mint ; " and a law was passed for that 
purpose. The lack of money was assigned as a 
reason. It was enacted that every shilling should 
weigh ninepence of English sterling, and that it 
should be accepted in payment of rent and other 
debts at its face valuation — thus cheating the 
creditor out of 25 per cent of his dues. Fraudu- 
lent as was this coin, it could not compete in circu- 
lation with mouldy tobacco and heated corn, which 
were running against it as a legal tender ; and so 
it abandoned the struggle and went abroad. 

These Catholic legislators, individually, would 
have scorned to acquire three shillings by stealing 
or by highway robbery, but they could freely join 
hands with the Massachusetts Puritans in passing 
a law to swindle creditors out of their just de- 

These were the only laws for coining money 
that occur in our history previous to the Revolu- 
tion ; but there was no end to the efforts of the 
colonics to regulate the value of foreign coin. 



Virginia, in 1645, finding that tobacco currency 
hardly met the convenience of trade, prohibited 
dealings by barter, and established a Spanish 
silver piece as the standard currency of that 
colony, at a valuation of six shillings. This piece, 
known as the " Spanish pillar dollar," was well re- 
ceived, and, with its halves, quarters, and eighths, 
became an important coin in the subsequent cur- 
rency of all the colonies. 

This dollar contained at that time 386| grains 
of pure silver, and was equal in weight to the pure 
silver in fifty-four pence sterling. As a sterling 
pound of twenty shillings contained 240 pence, 
it was equal to 2 ^, or 4.44|, of these Spanish 
dollars ; and no legislation could change this ratio 
without changing the weight or fineness of the coin. 
But Virginia declared there was six shillings in this 
dollar, and consequently the Virginia pound of 
twenty shillings could be but $3.33-^. 

This valuation of the shilling seemed to be suf- 
ficiently erroneous and excessive to meet the 



wants of the New England colonies ; and in 1672 
they adopted the coin at a like valuation in those 

South Carolina also adopted it, but solemnly 
declared that a dollar was worth 4s. 8d. — making 
a pound worth 4| dollars. 

Pennsylvania, New Jersey, and Maryland fell 
into line, and declared that in this dollar there 
were 7s. 6d., — making their pound 2| dollars. 
New York and North Carolina said this dollar 
contained eight shillings — making the pound of 
those colonies 2i dollars. 

And now imagine to what condition the circu- 
lation of the colonies had come, under the various 
laws enacted to keep coin in circulation, and 
help the debtor classes avoid paying their just 
dues. Throughout the colonies the unit of ac- 
count was the pound sterling, and in pounds, shil- 
lings, and pence all values were reckoned. The 
only money of this kind was the sterling currency 
of England, and from that country the colonies 
brought the names of their coins and the unit of 
account. Had no law interposed, the value of 
these pieces, as well as their names, would have 
been retained ; and throughout the colonies and 
the mother country a common currency would 
have existed. 

But the laws stepped in, and, taking a Spanish 
coin having no possible relation to English money, 


declared that it contained a certain number of Eng- 
lish shillings, which it did not at all, as the law 
makers well knew. The laws did not even agree 
as to how many shillings it contained : the shilling 
in Pennsylvania was larger than that in New York 
and smaller than that in Virginia. The pound 
itself had four different values, and none of them 
that of the English pound, from which it was 
named. And all this confusion brought about 
by legislative enactments to force into circulation 
the Spanish dollar, and to make it do duty as so 
many shillings. 

Notwithstanding these efforts to keep coin at 
home, Governor Winthrop tells how " traders 
came to Massachusetts and drained the colonists 
of their coin." 

" The impossibility of a metallic currency in a 
state of colonial dependence," says the historian 
Bancroft, " was assumed as undeniable." 

The Assembly of Rhode Island subsequently 
enunciated the following proposition as the basis 
of the colony's action respecting money : 

" This will always be the case with infant colo- 
nics that do not raise so much as they consume, 
cither to have no money, or, if they have it, it 
must be worse than that of their richer neighbors 
to compel it to stay with them." And this seemed 
elsewhere to be accepted as a satisfactory expla- 
nation of the absence of coin. 



The colonies, having exhausted the products of 
the earth and the shells of the ocean in their 
efforts to secure a currency without avail, now 
looked around for other materials. Again they 
/ did not look long. 
Q/ Massachusetts took the initiative. In 1690 an 
expedition was fitted out against Canada — the 
spoils to pay the expenses. The soldiers engaged 
in it returned without any booty, and so the colo- 
nies had to foot the bill, as they deserved to. It 
cost them fifty thousand pounds, Massachusetts 
currency, of which seven thousand pounds were 
issued in notes made receivable for taxes. The 
soldiers disposed of them at one-third discount — 
according to Sumner — and the next year it was 
ordered that the bills be received for taxes at 
an advance of five per cent over coin, with the 
promise that they should all be redeemed within 
a year. This kept the paper at par for twenty 
years, when at last it was redeemed. This was 
the first issue of paper money by the colonics. It 
was followed by other issues, keeping the colo- 


nists busy as bees regulating the values and trying 
to counteract the laws of nature. 

In Rhode Island issues of paper money were 
made, not under any pretext that the exigencies of 
the government required them, but "to advance 
trade and promote manufactures" ; as we hear to- 
day of the necessity of coining silver to encourage 
mining industry. The issues, while made in con- 
venient form for circulation, were in the nature of 
a loan, bore interest at five per cent, and were 
based upon mortgages of real estate belonging to 
those to whom the money was advanced. 

In 1710, seven thousand pounds were issued, 
and five years later forty thousand more. In 1721 
another issue was made of forty thousand pounds ; 
the interest of which was made payable in flax and 
hemp, the reason for the issue being the alleged 
scarcity of specie; and interest was made payable 
in flax and hemp in order to encourage the growth 
of those staples. 

Here indeed was a shower of wealth, and all 
w T ho had received the loans clamored for new 
issues — every new issue depreciating those out- 
standing, and making payment easier ; and out- 
siders clamored vociferously to get in, on the 
ground of justice and fair play. But few pay- 
ments of these loans, however, were made. The- 
legislators themselves were largely interested in 
the scheme, and consequently the payment of the 


loans was not urged with vigor. Many of the 
recipients got as largely in arrears as possible, and 
then decamped ; and the few foreclosures that 
were made hardly paid for the expenses of the 

In 1728, the time of payment for previous loans 
was extended as a favor to the debtor class ; and 
forty thousand more was issued " on account 
of the decay of trade and commerce." Other 
issues rapidly followed, making in all three 
hundred and twenty thousand four hundred and 
forty-four pounds. Still flax and hemp were not 
raised in undue amounts, and trade and commerce 
were not revived. 

In 1751, twenty-live thousand more was issued, 
the bills "to be printed on new plates." Whether 
the government thought that impressions from 
new plates would give additional value to the 
bills when they came to be used as wall paper, or 
whether the old plates were worn out, does not 
appear. All these bills were declared by law to 
be equivalent to a certain amount of silver, but 
they passed in circulation at entirely different 
rates. For some reason these bills came to be 
called " old tenor " and " new tenor " ; and the last 
named was declared to be equal to silver at 6s. 9d. 
sterling per ounce, and this was to be equal to 
13s. 6d. new tenor, or 54s. old tenor. 

In 1763, Parliament prohibited the colonial 


issue of legal tender paper, and the courts arbi^j 
trarily fixed the scale of depreciation for settlement 1'"^ 
of debts. One Spanish dollar was to be equivalent/ 
to seven pounds old tenor notes. 

In 1764 the rate of old tenor bills was fixed at 
one to twenty-three and a third; in 17G9 six 
shillings lawful money was to be reckoned equal 
to eight pounds old tenor. In 1770 old tenor 
notes were no longer allowed to circulate, and 
these with the new tenor soon disappeared entirely. 
Thus did the vision of wealth dissipate. 

Iihode Island had enjoyed more than any other 
colony a prosperous trade with the West Indies, 
which had brought much wealth, especially to the 
merchants of Newport. In her sister colony, 
however, paper money had been superseded by 
silver coin, and the foreign trade, which bounties 
could not revive or retain, left Newport for Boston, 
never to return. **"%. 

In 1709, New Hampshire, Rhode Island, Con- 
necticut, New York, and New Jersey joined in an 
expedition against Canada, and issued bills of 
credit to meet the expenses, making them a legal 
tender in payment of debt. After considerable 
depreciation these notes were redeemed at differ- 
ent rates. 

Pennsylvania, in 1723, issued bills of credit, but 
on such terms as was thought would prevent their 
depreciation. Imitating the policy of Ithodo 


Island, it loaned the bills upon land security, but 
in addition thereto also loaned upon plate de- 
posited in the Loan Office, obliging borrowers to 
pay live per cent interest. The loan was for 
sixteen years, payable one-sixteenth annually. 

Franklin heartily approved the scheme, and 
printed a pamphlet in favor of it. In his autobiog- 
raphy he hints at his reason for his interest in 
the emission: tr My friends there, who thought I 
had been of some service, thought fit to reward me 
by employing me in printing the money — a very 
profitable job, and a great help to me." Later on, 
he still argued the emission to be a good thing, 
but thought probably they had enough of it. 

These bills were perhaps better than those 
issued by other colonies ; but notwithstanding the 
security on which they were issued, soon depre- 
ciated to one hundred and ninety of bills to one 
hundred of sterling. 

Connecticut also issued legal tender bills for 
the expenses of the government, but not as a loan. 
For a time the issue was prudently managed, but 
the voluminous circulation of the other colonies 
overcame the restraint, and depreciation followed. 
Between 1744 and 174G the enormous amount of 
one hundred and thirty-one thousand pounds was 
issued, and one ounce of silver became worth sixty 
shillings in paper. 

The historian Bronson says : " This last emis- 


sion broke the camel's back Trade was 

embarrassed, and the utmost confusion prevailed. 
No safe estimate could be made as to the future, 
and credit was almost at an end. No man could 
safely enter into a contract which Avas to be dis- 
charged in money at a subsequent date. Prudence 
and sagacity in the management of business were 
without their customary reward." 

In 1751 Parliament prohibited the colonies of 
Rhode Island, Connecticut, Massachusetts, and New 
Hampshire from issuing any more bills of credit, 
or to reissue those already out. But the prohibi- 
tion was not to operate in cases of extraordinary 
emergencies, or in case of invasion, but in no case 
were the bills to be a legal tender. 

Subsequently, however, between October, 1771, 
and October, 1774, Connecticut issued thirty-nine 
thousand pounds in bills of credit, bearing no 
interest, but reasonable and sufficient taxes to 
meet their redemption were levied, and they did 
not depreciate. 

In the emission of paper all the other colonies 
took part, and with substantially like results. 

One after another the paper issues disappeared 
from circulation, and the colonics were generally 
free from irredeemable currency before the out- 
break of the war of the Revolution. 

So disastrous to business and so repulsive to 
the consciences of all men of probity were these 


issues that all parties became loud in their con- 
demnation. A fervent hut observant French 
author, writing at the time, gives a clear impres- 
sion of the condition of society at that period : 
"This State is ravaged by a political scourge, more 
terrible than either mosquitoes or fever ; it is 

called paper money It gives birth to an 

infamous kind of traffic — that of buying and sell- 
ing it by deceiving the ignorant ; a commerce 
which discourages industry, corrupts the morals, 
and is a great detriment to the public Pa- 
triotism is consequently at an end, cultivation 
languishes, and commerce declines." 

Massachusetts had led the colonies into this 
financial bog ; and also led the way out of it. 

rThe depreciation of the paper of this colony had 
decreased in 1741 to five hundred and fifty to one. 
About that time, the governor of that colon}^ took 
it into his head to capture Louisburg from the 
French. There seems to have been no provoca- 
tion at all for this action. It was purely a free- 
booting expedition — but popular with the masses, 
and it was successful. To pay expenses addi- 
tional issues of paper money were made, and so 
rapidly did they depreciate that in 1749 they were 
i quoted at eleven hundred to one. 

The Parliament of the mother country, how- 
ever, was greatly annoyed at the action of Massa- 
chusetts in capturing Louisburg, and voted to 


redeem it from the colonies by paying a handsome 
sum. Of this amount Massachusetts received one 
hundred and thirty-eight thousand six hundred 
and forty-nine pounds sterling ; and with it re- 
deemed all her paper issues at eleven to one, and 
still had a goodly sum left. 

Double Standard. 

The paper issues of the Massachusetts colony 
being out of the way, silver coin appeared to take 
their place. As the issues of the other colonies 
disappeared, the circulation of this coin became 
more and more general. Even some gold was 
found daringly attempting to circulate among 
these financial robbers. It could not escape the 
vigilant eye of the General Court of Massachu- 
setts, a Court which has ever been on the alert to 
provide a law to regulate all human actions. 

With the declared purpose to facilitate trade, 
this Court, in 17 02, made gold a legal tender at 
2^d. per grain, reducing the existing standard 
about live per cent. At this rating, debts could 
be paid cheaper in gold than in silver, and so the 
silver coins went out of the country, leaving gold 
to circulate alone. The silver, however, did not 
leave without returns in exchange therefor. These 
returns consisted mainly of manufactured goods, 
and needlessly expensive wares. 

The disappearance of silver could not be uc- 



counted for ; but was believed by the Court to be 
due to the extravagance of the people, as shown 
by their excessive importation of foreign goods. 
It was therefore resolved by a large class of people 
that, until times were better and money less scarce, 
they would wear no article of foreign manufac- 
ture — a panacea for evils of this kind, which has 
not been restricted to the last century, or to the 
colony of Massachusetts Bay. 

This was the first effort in America to establish 
a double standard of values. It resulted, as have 
all such efforts, in retaining the metal overrated 
in value, and driving the other from circulation. 
The scarcity of silver led to the agitation of the 
issue of more paper money, but without immediate 



Meaxwiiile events were shaping for a radical 
change in the political organization of the colonies. 
The mother country, owing to her incessant wars 
with France, was pressed for means, and as con- 
siderable expense had been incurred from time to 
time in protecting her American possessions from 
the invasion of the French and Indians, her Par- 
liament levied a tax on the colonies to obtain the 
repayment in part of such expenditures. Against 
this policy there was a stout resistance on the part 
of the colonies, which had not before been subjected 
to a direct tax of the kind, in view of which Par- 
liament receded from all its purposes, except to 
impose a tax of twopence a pound on tea ; and as an 
export duty of considerably more than that amount 
on the articles shipped from England to the colonies 
had just been taken off, the colonics could have no 
especial cause of complaint as to the amount of the 
tax. They appeared to be willing to recognize the 
right of England to impose an export duty upon 
any articles shipped to them and also to forbid 


» their trading directly with other nations. Such 
restrictions were considered as necessary to regu- 
late trade, but to impose a direct tax was an in- 
dignity which they would not tolerate. A cry was 
therefore raised of" no taxation without representa- 
tion" — a principle in political economy which did 
not exist in the colonies themselves, did not exist 
in the mother country, in fact never did and 
probably never will in reality exist in any politi- 
cal community. But it proved a powerful rallying 
cry, and Dec. 16, 1773, three cargoes of tea from 
England, ready to be landed in Boston, were 
thrown overboard in the harbor; and war was 
inevitable. Delegates from the several colonics 
united promptly in forming what was called the 
" Continental Congress." 

On the 19th of April, 1775, a conflict of arms 
occurred at Lexington, Massachusetts ; and so 
prompt was this Congress, not only in organizing 
its armies to meet the invading foe, but also in 
providing means for carrying on the war, that be- 
fore the end of that month it had issued two mil- 
lion dollars of Continental bills, in effect lesral 
tender in the payment of debt. 

If ever the issue of paper money can be justified, 
the action of Congress in this matter should not 
be censured. A large portion — probably a ma- 
jority — of the people of the several colonies had 
inaugurated the war, to which they subsequently 


pledged their lives, fortune, and sacred honor," 
and were earnest in its prosecution. Unfortunately 
they had not given to Congress the power to levy 
tuxes to meet expenses. Congress therefore could 
not, and the colonies would not, levy a tax to sup- 
port the war ; and there was no other alternative 
for Congress but to issue these bills or to abandon 
the contest. 

For a time the bills floated at par with coin, and 
to the colonics the first instalment of paper was as 
if some one had given them two million silver 
dollars. The urgent necessity for means was thus 
temporarily bridged over ; and the plan of issuing 
bills seemed so easy a method of obtaining reve- 
nue, that all propositions for taxation were aban- 
doned ; and other issues of bills rapidly followed. 
By the end of the year they amounted to 
$19,000,000. Before that time, however, the coin 
had left the country, and the bills were depre- 
ciated considerably below par in specie. 

Congress implored the colonies in the most fer- 
vent manner to impose a tax to carry on the war ; 
but the colonies, familiar with the issue of notes, 
and having before them the apparently successful 
policy of Congress in issuing I hem, took no steps 
towards taxation ; but, instead, commenced issuing 
bills of their own — amounting in 1775 to nearly 
$3,000,000, of which Virginia issued $875,000. 

The policy of no taxation, and of issuing bills 


of credit, was now thoroughly established ; and 
each colony, fearing some other one might secure 
an advantage, hastened to put in circulation the 
greatest possible amount of bills in the least pos- 
sible time. Congress also kept its presses running 
with such rapidity that bills were issued consider- 
ably in excess of the amount authorized, before the 
machine could be stopped, putting into circulation 
in the course of five years about $241,000,000. 
The several colonies found, when counted, that 
they had issued meanwhile, of their own bills, an 
additional amount of over $210,000,000. 

The Continental currency continued to depre- 
ciate, as the issues continued to be made, but the 
emissions authorized during 1778 amounted to 
about $63,500,000. In December of that year 
Congress published an address to the people, in 
which it said : " We should pay an ill compliment 
to the understanding and honor of every true 
American, were we to adduce many arguments to 
show the baseness or bad policy of violating our 
national faith, or omitting to pursue the measures 
necessary to preserve it. A bankrupt, faithless 
republic would be an invalid in the political world. 
. . . Apprised of this consequence, knowing the 
value of national character, and impressed with a 
due sense of the immutable laws of justice and 
honor, it is impossible that Americans should think 
without horror of such an execrable deed." 


The emissions of 1779, however, amounted to 
$140,000,000, having a coin value, according to 
Mr. Jefferson, of nearly $7,329,278. 

In March, 1780, this same Congress authorized 
silver to be received for paper at the rate of one 
to 140, forgetful of all its brave words ; and also 
provided for the redemption of the money in cer- 
tificates which seemed to be equally worthless. 
This action did not check the depreciation of the 
currency, but notwithstanding the depreciation it 
continued to circulate north of the Potomac until 
the end of 1780. "In Virginia and North Caro- 
lina," says Mr. Jefferson, " it continued a year 
longer, and then expired without a groan ; " or as 
Dr. Bronson says, with a pathos very touching, 
"it gently fell asleep in the hands of its last 


cm BONO? 

TnE country being now practically without a 
circulating medium, Congress was at its wits' end to 
provide one. But, while Congress hesitated, silver 
coin came into circulation as if by magic. This 
might have been expected ; in fact there never was 
any good reason for its disappearance from the 
country. The privateers fitted out by the colonies 
brought into our ports valuable prizes, adding great 
wealth to the merchants in our cities. The farmers 
in the country found in the British army a ready 
purchaser for all surplus products of their farms 
at enhanced prices, for which they received coin, 
and as soon as the channels of trade were relieved 
of paper money, specie naturally and readily took 
its place, although Cornwallis had not surrendered, 
and independence was far from being achieved. 

The expenses of the war from that time onward 
were met by the proceeds of loans obtained in 
France and Holland, which were successfully 
negotiated and honorably paid at maturity. 

r. Throughout all the struggle there is evidence of 
but little, if any, revenue having been raised by 


direct taxation. Paper money and other forms of 
indebtedness, together with the $10,000,000 of coin 
received from foreign loans, constituted the entire 
resources of the colonies with which they con- 
ducted the War of Independence to a successful 

But the issue of the paper money, and its sub- 
sequent practical repudiation, was in effect a tax- 
levied upon the people equal to its value in specie 
at the time of its emission. This value has been 
estimated by Jefferson at about $74,000,000. And 
who paid this sum? . As the notes gradually be- 
came of less and less value, each holder of them 
suffered a tax equivalent to the amount of their 
depreciation while in his hands. Thus, if a person 
received $1,000 of notes equivalent at the time to 
$ ( J00 in specie, and, retaining them in his hands 
in the meantime, afterwards paid them out when 
worth but $800 in specie, he paid a tax to the 
government in the transaction of $100. 

This method of imposing a tax could hardly be 
outdone in the injustice of its operation. The pa- 
triotic men who sympathized with the little band 
struggling for independence, and the soldiers who 
fought the battles, took the money as a patriotic 
duty, trying as best they knew to maintain its value. 
It was in their hands mainly that the depreciation 
occurred, and by them that the loss was suffered. 
The speculator, the camp follower, and the tory, 


either refused it altogether, or took it and disposed 
of it at such a rate as to secure a profit. 

If, instead of issuing this money, a tax had been 
levied by the colonies mainly upon the property of 
the country, the exaction would have fallen where 
it could have been easily borne. 

In truth, the wealth of the country had but 
little sympathy with the men who projected or 
were carrying on the war of the rebellion. The 
Hon. Charles Biddle, one of the foremost men of 
the time, a friend of Franklin, and thoroughly in 
sympathy with the war, who says, in his recently 
published autobiograplry, that as a young man he 
was present at the State House in Philadelphia on 
the fourth of July, 177(3, when the Declaration of 
Independence was read, relates that a large share 
of the intelligence and nearly all the wealth of 
Philadelphia was enlisted on the side of the mother 
country, and that nearly half of the people and 
nearly all the wealthy citizens of New York city 
were in like sympathy. 

Their objection to the war was based upon what 
they believed to be patriotic feeling. Even in case 
of success they feared the colonies would not be 
able to unite in one nation ; but would be broken 
into thirteen States, without any standing among 
the nations of the earth, and without ability to 
maintain their own independence. 

Recognizing, as we must, their sincerity of pur- 


pose and the strong reasons they gave for sympa- 
thizing with the mother country, there still remains 
the fact that a majority of the colonists were strug- 
gling for independence, and that they had the right 
to tax the wealth of the land to aid them in their 
cause, even if they could not command personal 
aid and sympathy from its owners. 

Had it not been for the adoption of paper money, 
there would have been no recourse for the colonists 
but taxation, and with a tax levy judiciously 
planned, and courageously enforced, the war could 
not have lasted long, and the horrors of Valley 
For^e would have been unknown. 

As it was, the patriotic men, drawn largely from 
the lower walks of life, not only achieved for us 
our independence, but, through their unnecessary 
deprivation, met by far the larger part of the ex- 
penses of the conflict borne Irv that generation. 
So far as the necessity of providing a circulation 
was concerned, this policy was certainly uncalled 
for. The fact that, long before the war was over, 
there was an abundance of silver in circulation 
clearly indicates that at no time, with a proper 
financial policy, would the colonists have been 
embarrassed for the want of a sound circulating 

Of the ability of the colonies to have met by 
taxation the expenses of the war, there can be 
little doubt. Mr. Jefferson estimates I hat the 


entire cost of the eight years of war was $140,- 
000.000 in specie. Deducting therefrom $10,- 
000,000 obtained through foreign loans, and we 
find that to have met the annual expense of 
the war by taxation would have required but 
about $16,000,000. The population of the col- 
onics at that time was not less than 3,000,000, 
and consequently a tax each year equivalent to 
the rate of $5.25 per capita, levied upon prop- 
erty and rigorously collected, would have met 
the entire payment of the war expenses ; and 
any hardships attending its payment would have 
been thrown upon the wealth of the country, 
which so largely failed to lend a helping hand. 
This rate of taxation cannot be considered ex- 
cessive. The country has been subjected since 
to a greater rate of taxation. During the four 
years following our late civil war, the govern- 
ment collected an equivalent of about $300,000,- 
000 per annum in specie ; equivalent to a per 
capita tax of about $8.25, and yet no especial 
hardships resulted. 

But the colonists, with a mistaken financial 
policy, no more hesitated to challenge the law of 
nature than to meet the forces of George III. 
Victorious as they were over the forces of his most 
powerful Majesty, they were unable to resist the 
silent but ever present force which ultimately sent 
their paper dollars to the waste basket. 



Tiie Continental Congress continued its session 
after the close of the war, but indulged in few ex- 
periments with paper money, though propositions 
for further emissions were agitated in several of* 
the colonies. 

In 1781 Congress instructed the Superintendent 
of Finance, Robert Morris, to report to it a table 
of rates at which the different foreign coins should 
be received at the public treasury. This informa- 
tion was important and necessary, as the country 
had yet no coinage of its own, and the relations of 
the several foreign coins were not well understood, 
except among dealers in bullion. 

Morris promptly replied to the resolution, but 
gave none of the information asked for, stating, 
however, that the resolution suggested to him 
something else: and that was, the various stan- 
dards of values existing throughout the colonies; 
and after discussing at length the lamentable con- 
fusion resulting therefrom, he recommended that a 
mint be established for a new and uniform coinage, 



expressed in the terms of a unit of value, which 
should be fixed by law. 

Several months later he further replied to Con- 
gress, again recommending the establishment of a 
mint; meanwhile all foreign coins to be received 
according to their weight and fineness, their values 
to be expressed in the terms of dollars, of which 
values he submitted an estimate. "I take," he 
says, " the liberty to observe that this estimation 
of coins is founded upon the quantity of alloy 
which they respectively contain." 

On Feb. 21, 1782, Congress approved of his 
suggestion to establish a mint; and directed him 
to report a plan for conducting the institution. 

In compliance therewith, he recommended the 
adoption of the Spanish dollar, containing, as he 
believed, three hundred and seventy-three grains 
of pure silver, as a standard ; and thought it would 
be necessary to divide it into one thousand four 
hundred and forty parts, so that the pennies of the 
several States might find therein an exact expres- 
sion of their respective values. He proposed two 
copper coins, one containing eight and the other 
live of these units. The silver value of the unit 
would be one-fourth of a grain. Proceeding 
decimally, one hundred would be twenty-live 
grains, which was to be the lowest of the silver 
coins; "and this might be," he says, "called a 
cent;" but he gives no reason for this possible 


nomenclature. Probably from these crude and 
impracticable suggestions was evolved our decimal 
currency, based upon the standard proposed — the 
Spanish silver dollar, though this coin was subse- 
quently reduced in weight. 

In 1785, the Congress of the confederation 
adopted this coin as the ideal unit of value ; and 
the following year decided that it contained 375.64 
grains of pure silver. The amount of silver con- 
tained in this piece had before been subjected to 
reductions. In 1707 this dollar was declared by 
the English mint to contain 386| grains ; and in 
1772 the amount of pure silver in it had been 
fixed by law at 377] grains. Probably the coins 
upon which Morris based his estimate had been 
some time in circulation and were somewhat worn 
by use. 

The same act which fixed the value of the dollar 
provided for a decimal subdivision in coins, and 
for the coinage of the dime (10c), double-dime 
(20c.) and half dollar (50c.) containing proper 
proportions of silver. The policy of establish- 
ing a decimal currency in this country was by this 
act authoritatively determined upon. 

The same enactment authorized the coinage of 
the gold eagle, containing 246. 2G8 grains of fino 
gold, and a half eagle of proportionate weight of 
the same fineness, and also of the copper cent and 
half-cent. These subdivisions of the dollar were 


probably due to suggestions of Mr. Jefferson, 
whose memorandum, without date, contains recom- 
mendations to that effect. The ratio of gold and 
silver in these coins, it will be seen, was 1 to 
15.253, while the market valuation of the two 
metals was 1 to 14.89. The reason for thus 
undervaluing silver coin cannot at this day be 
ascertained. Silver had always been relied upon 
for currency throughout the colonies ; but under- 
valued, as provided in this enactment, it would 
soon have disappeared from circulation. 

The same Congress also authorized a mint, and 
the accounts of Mr. Morris show that he expended 
about $2,000 thereon, and prepared a few dies for 
the copper coins ; but no coins were issued. The 
confederation, however, was making way for the 
establishment of the present form of government, 
and the coinage act was of no effect. 



In 1787 the new constitution was framed. It 
provided that no State should coin money, emit 
bills of credit, or make anything but gold or silver 
coin a tender in payment of debt ; also that Con- 
gress should have power to coin money and regu- 
late the value thereof. In framing: this document 
a proposition was made to give Congress power to 
emit bills of credit, but it received only two votes. 
Evidently the delegates had too fresh a recollec- 
tion of the appalling results which had followed the 
issue of bills under the confederation ; and stand- 
ing on the wreck of more than four hundred mil- 
lions of paper money they had little sympathy 
with any proposition for further experiments of 
the same kind. There can be no doubt that the 
framers of the constitution contemplated only a 
hard money currency for the future of this country. 

The constitution was adopted in 1789, and Con- 
gress, in its firsl session thereunder, declared that 
the treasury should receive only coin in payment 
of public dues, and iixed the rates at which such 
coin should be received. 



Mr. Hamilton was made Secretary of the Treas- 
ury, and in response to a resolution of the House 
of Representatives, in May, 1791, he transmitted 
to that body his plan for the establishment of a 
mint, submitting therewith an exhaustive discus- 
sion of the policy to be pursued in future coinage 

The pound was still the unit of account, though 
of different values in the several States, but it was 
not easy to say what was the unit of coins. In 
adjusting foreign exchanges, preference appears to 
have been given the silver dollar, but even this 
piece had no well-determined weight or fineness. 
Changes in it, as before stated, had been made 
from time to time, and the value of any one piece 
depended, therefore, somewhat on the date of its 
coinage. There was also in circulation the Seville 
dollar of 386 grains, in which many contracts per- 
taining to land were understood to have been made. 
A reform of the currency seemed absolutely neces- ^ 
sary, and, after much discussion, Hamilton con- \ 
eluded that the unit in the coins of the United 
States ought to correspond with 24| grains of pure 
gold, and 371£ grains of pure silver, each answer- 
ing to a dollar in the money of accounts. 

As the principal difficulty in the existing coinage 
was, he admitted, the presence of three or four 
coins each bearing the name of a dollar, but of 
a different weight and fineness, it seems strange 


that he should have attempted to cure this evil 
by proposing the issue of two more dollars, the 
silver one in weight unlike that of any already 
existing, and the gold one bearing a relation in 
weight of 1 to 15 to that of silver ; thus giving 
the country two more dollars to select from in 
computing their exchanges and keeping their 

Congress, however, acted upon his suggestion 
and authorized a mint, and the coinage of gold and 
silver pieces with the relation recommended. This 
act was approved April 2, 1792, and few acts more 
far-reaching in effect have ever found place upon 
our statute books. Upon it, thereafter, were to 
depend the relation of debtor and creditor, the 
expressed values of property, and all the intricate 
relations of prices and labor which were to be 
thereby influenced, beneficially or otherwise. 

He admitted that if the ratio between the metals 
should not prove to be the commercial one, there 
was hope of retaining only the overvalued metal 
in circulation.. He asserted his belief, however, 
that 1 to 15 would prove to be the commereial 
ratio. Yet England, with the two metals legally 
valued at 1 to 15.21, had not been able for fifty 
years to bring out any gold, and in no market 
of the world did the ratio proposed by Hamilton 


Gold was overvalued, and consequently the 
silver dollar, being of less value in the commercial 
world than any of the other dollars then existing, 
became the standard of value and the unit of 
account, which place it held until 1834. 

It seems almost a discredit to the genius of 
Hamilton to believe that he thought gold would 
circulate while thus erroneously valued. History 
was full of precedents to the contrary, and the 
selfishness of man, which leads him to seek the 
cheaper of two commodities with which to pay his 
debts, can be relied upon as a constant factor in 
problems of this kind. 

In the absence of gold from our circulation, 
silver could not be expected to meet the require- 
ments of commercial transactions in a rapidly 
growing country. Some method of making ex- 
changes involving large amounts was necessary, 
and, whatever may have been the mistakes of 
Hamilton in computing the metallic ratio, he cer- 
tainly did not lack foresight in anticipating the 
difficulties likely to arise from the need of a less 
cumbersome medium than silver coin. In Decem- 
ber, 1790, he had recommended to Congress the 
establishment of a national bank, with a capital 
of $10,000,000, with authority to issue notes 
which should be receivable in payment of all dues 
to the United States, and his recommendations 


were transferred to the statute book, as they 
usually were, without material change. The 
notes were therefore issued and made receivable 
in payment of public dues. So soon did the 
good ship of state drift from her moorings into 
the tempestuous ocean of paper money. 



The several States, being prohibited by the 
Constitution from emitting bills of credit, soon 
devised a scheme by which money might be made 
"cheap," and everybody have some of it. New 
England took the initiative. 

Massachusetts, in 1784, had granted a charter 
to a bank, with power to issue bills without re- 
straint. Soon after the adoption of the Consti- 
tution other banks sprang into existence in that 
section, and, either under the authorit} r of their 
charters, or in disregard of them, flooded the 
country with bills which came to be as worthless 
as those of the Continental Congress. Silver dis- 
appearing from circulation, bills as low in denomi- 
nation as twenty-live cents were issued, on account 
of the scarcity of coin for change. 

Rhode Island, whose colonial history was redo- 
lent of bounties, export duties, and industrial 
loans, outdid her own record in explosive financial 


In 1784 the Farmers' Exchange Bank of 
Gloucester, in that State, was incorporated, the 
capital stock to consist of 2,000 shares of $50 
each, payable in seven instalments in gold or 
silver. Some of the stockholders paid in a part 
for their shares, and gave their notes for the re- 
mainder. The directors paid in no money what- 
ever, giving their individual notes for the stock ; 
and the bank commenced operations with only 661 
shares issued, on which there had been received 
any specie, and the total amount of specie re- 
ceived was $11,806.61, most of which was at 
once drawn out on loans made to the directors. 
The bank continued to do business for four years, 
when the stockholders transferred to one Andrew 
Dexter, Jr., of JBoston, a majority of the stock, 
he borrowing from the bank, on his personal note, 
the amount necessary to pay for it. This loan he 
never repaid. 

Dexter now having control of the bank, issued 
at divers times in the course of the year its bills 
in the amount of $7(50,285. The only restraint he 
suffered in the issue of the hills was the physical 
inability of the cashier to sign them; but to facili- 
tate the issue, this officer went into the country, 
where he would be undisturbed, and spent his 
entire time in signing his name to the bills. 

For the enormous sum issued, Dexter gave his 
receipt to the hank, stating that as agent for the 


bank be would invest it advantageously. Subse- 
quently be took up bis receipt, and gave bis note 
for tbe whole amount, in form as follows : " I, 
Andrew Dexter, Jr., do promise tbe President, 
Directors, and Company of tbe Farmers' Exchange 

Bank, to pay them, or order, $ , in two years 

from date, with interest at two per cent per annum ; 
it being, however, understood that said Dexter 
shall not be called upon to make payment until be 
thinks proper, he being the principal stockholder, 
and best knowing when it will be proper to pay 
the same." It is unnecessary to add that he has 
not yet thought proper to pay the amount. 

In 1809 the crash came. Such was the confu- 
sion in the accounts of the bank, that the precise 
amount of bills outstanding could not be .ascer- 
tained ; but the committee appointed by the legis- 
lature to investigate its affairs estimated the amount 
to be $580,000. The specie on hand at that time 
amounted to $86.46. 

In the same year other banks in New England 
went to the wall, revealing that they had been en- 
gaged in transactions as disreputable as those of 
the Gloucester bank. One bank in Massachusetts 
was found to have in its vaults only $40 in specie ; 
and another not any. One bank in New Hamp- 
shire was in nearly the same situation, with several 
thousands of bills outstanding. Widespread dis- 
aster followed. 


The legislature of Massachusetts, to avoid like 
evils in the future in that State, on January 1, 
1810, fixed a penalty of two per cent a month, 
payable by the bank to bill-holders, for failure or 
refusal thereafter on its part to redeem its bills on 
presentation. This proved a salutary restriction. 

South of New York, banks were fewer, and 
there was less disturbance. The issues of the 
National Bank appeared to have been well sus- 
tained, and they kept in check undue issues by 
other and weaker banks. Its charter expired, 
however, in 1811 ; and though the affairs of the 
bank appeared to have been judiciously managed, 
Congress refused to renew its charter. The power 
the bank had exercised in restraining the issues of 
smaller banks had made it unpopular in many 
localities, and the advisability of maintaining an 
institution of such character had become an irritat- 
ing question in national politics. The same in- 
fluences which defeated its charter before Congress 
operated successfully in the State legislature, to 
which it had made application for a new charter, 
and the bank was therefore obliged to wind up its 

The field being now cleared, symptoms of mania 
for bank issues began to develop in the Middle and 
Western States. In 1814 the legislature of Penn- 
sylvania granted forty-one charters for banks (over 
the veto of the governor) , with an aggregate capi- 


tal of $17,000,000, of which only one fifth part 
was required to be paid in. Of the number 
authorized thirty-seven went into operation, the 
stockholders in many instances giving their notes 
for the amount due on their shares. These banks 
had but a fitful and ephemeral existence, fifteen of 
them expiring within four years of their organiza- 
tion, hopelessly insolvent. 

In 1814 all the banks of the country outside of 
New England suspended paying specie for their 
bills. No particular cause can be assigned for 
the suspension, except the war, and as the war 
was unpopular in New England the people of that 
section would accept no excuse of that kind. 

In the Middle and Western States a rapid de- 
preciation in the volume of currency took place, 
and the periodicals of that time are loud in com- 
plaints of high prices in those sections, and the 
greed of the blue-light federalists of New England, 
which had drawn from them all their specie. 

With the return of peace came additional issues 
of depreciated bank paper, and the abundance of 
money seemed very gratifying to a great mass of 
the people. Never before had there been in the 
countiy such an appearance of prosperity. The 
unequal value of the notes in the different localities 
seemed the only embarrassment ; but wealth was 
accumulating so rapidly that this annoyance was 
not considered serious, and it was thought that, 


once accustomed to it, the difficulties would 

In 1815, valuable cargoes of imported goods 
arrived in Philadelphia, and were eagerly sought 
for and rapidly sold. Carey called it the " golden 
age " of Philadelphia, and sneered at the opinion 
of the superficial reasoner who thought the banks 
were overtrading. 

About this time the mania for paper money had 
extended to the western frontier. The State of 
Kentucky incorporated forty new banks, with an 
aggregate capital of $10,000,000, and no provision 
for the payment of their notes, of which an enor- 
mous amount was issued. Most of these banks 
failed within a year; still by many writers the 
period was regarded as the golden age of the 

In August, 1818, twenty thousand persons in 
Philadelphia were begging employment, and the 
question on Market Street was, not who had broken 
the day before, but who yet stood. In Baltimore 
and other cities the distress was still greater. 
Business was virtually at a standstill, and property 
unsalable at any price. The papers of the day 
were filled with notices of sheriffs' sales. After 
all, the golden age had proved a paper one, and 
not even gilt-edged at that. The evils resulting 
might have been postponed, but they could not 
long have been avoided ; and the postponement 


of the evil day would probably have intensified 
rather than diminished the resulting distress. 

Meanwhile the over-issues of the bills of the 
bank had driven all the eoin into New England, 
where, being in excess of the amount needed 
for circulation, it had been shipped out of the 
country, leaving the south and west almost wholly 
destitute of a circulating medium ; and trade by 
barter was resorted to for want of a better 
medium. In those days of slow-sailing ships, and 
of stage-coaches, a readjustment of such a financial 
disturbance could not at best have been quickly 
accomplished. Such was the demand for money 
that a barrel of flour would be given for one dollar 
of specie, and in Kentucky a gallon of whiskey 
was willingly exchanged for fifteen cents. The 
courts refused to Grant relief on contracts calling 
for dollars, and the obligors were consequently 

About this time specie resumption is said to 
have taken place. But a large majority of the 
banks issuing notes were out of existence, and 
if those remaining can be said to have redeemed 
their notes in coin, it would seem that there are as 
many degrees of redeemability in a bank as of 
conscientiousness in man. 

The Bank of Darien, Georgia, among others, 
asserted that it had resumed specie payments, but 
any person making demands on it for payment of 


its notes was required, in the presence of the 
cashier and at least five directors, to make an oath 
that each and every bill presented was his own, 
and that he was not an agent for any other person ; 
and to pay on the spot, $1.37£ in specie as a fee 
on every bill presented, and unless he could find 
the cashier and five directors together he could not 
make the oath at all. The newspapers quoted the 
bills of this period at a discount ranging from five 
to twenty-five per cent, except in the immediate 
location of the bank issuing them. Yet all the 
1 tanks were said to have resumed specie payment. 
The rapid rise in the value of the rich lands in the 
valleys of the Ohio and Mississippi, which were 
being rapidly settled, furnished such margins of 
profit that the evils of the depreciated and ever- 
changing currency could be endured. While in the 
east some restraint in the issue of bank bills was 
maintained, in the west and south there was an issue 
of these lulls, known as " wild-cat currency." 
Many of the banks issuing them had but a nominal 
capital, consisting mainly of notes given by the 
stockholders in payment of their shares. In other 
cases charters of banks authorized by the New 
England and Southern Slates were disposed of to 
non-residents, who organized banks of little or no 
capital, and the citizens of remote cities suffered 
"Teat loss from the utter worthlessness of the issues. 
The various ebbs and Hoods of currency which alter- 


nately stimulated and depressed business until 
1836 need not be recounted here. The country 
prospered, however, despite the monetary evils. 

In 1836 the President ordered that only specie 
should be received in payment for land. This 
checked the delirium somewhat. Congress, in the 
following session, passed a bill annulling the pro- 
visions of this specie order. The President, how- 
ever, did not sign it, and as he received it only 
two days before the close of the session, it failed 
to become a law. This specie order remained in 
force until 1862, and was fruitful of naught but 
good results. 

The expansion of the bank issues and loans of 
1836 and of the few preceding years could have but 
one result, and in 1837 the crash came. The State 
1 tanks suspended, many of them hopelessly in- 
volved. The explosion was inevitable, and came 
none too soon. Several Boston banks even be- 
came insolvent, and the Massachusetts country 
banks were but little better, their issues amount- 
ing in some cases to twenty-live to one of specie. 
The New York banks put forth vigorous efforts to 
resume, and were generally seconded in their 
efforts by the banks of the Western and Middle 
States; and by the end of 1838 resumption was 
effected by most of the flanks in the country, and 
business was again in its natural channels. 

After the reaction of 1839, the country passed 


through two years of calm existence. Trade lan- 
guished, prices were low, and few enterprises 
proved remunerative ; yet the balance of trade 
with foreign nations was largely in its favor, and 
the importation of specie had largely increased. 
The country was not dead, but only taking a needed 
rest to recuperate its energies after a monetary 
debauch of half a century. Congress, however, 
could not let the patient alone, but gave it a tonic 
in the shape of a protective tariff. The patient 
recovered, and the political doctors have not failed, 
in all the subsequent advertisements of their nos- 
trum, to mention the wonderful cure. 

During the fourteen years following, the country 
passed through alternate periods of gloom and 
hope. The w T ar with Mexico brought about a 
financial "squeeze," but caused no special monetary 
disturbance. Again immigration began to flow 

O O o 

largely into the Western States, and new enter- 
prises were pushed much beyond the need of the 
settlers. In the summer of 1857 the Ohio Life 
and Trust Company, the credit of which had been 
very high, failed for several millions of liabilities. 
This failure gave a shock to the exchange in New 
York, and stocks fell off from thirty to fifty per 
cent. The banks were caught with a large amount 
of issues and loans outstanding, against a very 
small reserve of spceie. The banks of the New 
England States held a reserve against deposits and 


issues of only about eight per cent ; and the banks 
throughout the country held on an average only 
about sixteen per cent. With so small a reserve 
there can be no surprise that the banks were unable 
to meet at once the demands which were made 
upon them, although in the end most of them 
proved to be solvent. 

The State of New York had especially guarded 
against the suspension of specie payments by its 
banks. The issues of their notes were required to 
be secured by deposits of State stocks in the hands 
of a o-overnment officer, and the constitution of 
the State itself provided that no law should be 
passed authorizing the banks, under any circum- 
stances, to suspend specie payments. Yet the 
banks did suspend, and the judges of the court 
agreed not to issue any injunctions to prevent such 
action, unless there was some evidence that ihe 
banks were acting fraudulently. 

The panic which ensued created considerable 
distress in the money centres, but the country was 
generally prosperous, and early in the next year 
the banks throughout the country had resumed 
payments of their bills in specie, not to suspend 
again until the great events of the coming civil 
war pressed heavily upon them. With the civil 
war came a radical change in the monetary system 
of the country. 



In 1814 the country was at war with Great 
Britain. Anticipating the revenues for 1813, Con- 
gress, the preceding year, authorized the issue of 
interest-bearing Treasury notes, which should be 
received in payment of all dues to the govern- 
ment, the interest to be computed at 1\ cents per 
day on $100. The notes were not a legal tender, 
but might be paid to any one willing to take 
them. These were the first notes intended to 
circulate as money which were issued under the 
present Constitution. Fifty millions were issued. 
The advocates of their issue claimed that the 
scheme was only a method of discounting the 
revenue, and so, in fact, was only another form 
for a loan ; but the notes had a considerable cir- 
culation as money. 

The government, hesitating to levy a tax, bor- 
rowed what it could from the banks outside of 
New England. The revenues were further antici- 
pated by additional issues of Treasury notes, all 
of which bore interest except that portion of the 


loan issued in 1815 of less denomination than 
$100. These small notes were evidently designed 
to supplant the depreciated bank-notes in circula- 
tion. No one was compelled to take them, but 
they circulated as money, and were, like the 
interest-bearing notes, receivable in payment of 
dues to the government. 

The whole country was now embarrassed by 
the different values of the currency afloat. The 
Treasury Department was perplexed in con- 
ducting the fiscal affairs of the government. It 
was compelled to accept payment of duties and 
taxes in the legal currency of the place of pay- 
ment. It attempted to accept only notes which 
were accepted at par in the locality where re- 
ceived, but the depository banks in which the 
accounts were kept took advantage of this re- 
striction and credited the Treasury with only 
their own notes, at par. They received, however, 
the notes of other banks, but held them as special 
deposits, constituting a discredited fund upon 
which the Treasury drew, only to provoke the 
wrath of the payee of the check, to whom the 
government owed a just debt. With every bank 
the Treasury was obliged to keep four accounts, 
to wit : — 

1st. An account of cash, meaning, in the ab- 
sence of coin, legal currency. 

2d. An account of special deposits of bank- 


notes, being notes issued by banks other than the 

3d. An account of special deposit of Treasury 
notes bearing interest. 

4th. An account of deposits of small Treasury 
notes not bearing interest. 

The Secretary of the Treasury naively remarked 
that, in selecting the funds from which the govern- 
ment obligations were to be paid, he considered 
the character of the debt, and the person to whom 
payment was to be made. 

In such a condition of affairs, Mr. Dallas, Sec- 
retary of the Treasury, recommended to Congress 
the re-establishment of a national bank, with a 
capital of $50,000,000, of which the government 
should subscribe $20,000,000, in six per cent 
stock ; the remainder to be subscribed by individ- 
uals, $0,000,000 to be paid in specie, $6,000,000 
in Treasury notes, and $18,000,000 in six per 
cent stock. The bank was to be bound to loan 
$30,000,000 to the government, and was author- 
ized to suspend specie payments whenever the 
President of the United States should deem such 
suspension advisable. Its establishment was urged 
mainly upon the ground that its notes, even if 
depreciated, would furnish a, uniform currency, in 
which exchanges might be paid, and the fiscal 
operations of the government conducted. 

A bill embodying the recommendations of the 


Secretary was introduced in Congress, but the 
House struck out the clause authorizing- the bank 
to suspend specie payments, and modified several 
other provisions of the bill. After considerable 
delay and compromising between the two houses, 
the bill passed ; but the President vetoed it, giv- 
ing, as one reason, that the bank would be unable 
to maintain specie payments. Fortunately the 
war ended, and no further action was taken in the 

The Treasury balance, though in amount much 
in excess of any apparent necessity, consisted 
mainly of unavailable bank-notes, and to meet 
the payment of interest tailing due a loan had to 
be issued. The Secretary, in his annual report 
for 1815, thus portrays his troubles : — 

"At the close of the last session of Congress, 
the demands on the Treasury were interesting in 
their nature, as well as great in their amount. 
. . . The efficiency of the means which were 
possessed for the liquidation of these demands 
depended upon circumstances beyond the control 
of the government. The balance of money in the 
Treasury consisted of bank credits, lying chiefly 
in the southern and western sections of the Union. 

" The suspension of specie payments through- 
out the greater portion of the United States, and 
the consequent cessation of the interchange of 
bank-notes and bank credits between the institu- 


tions of the different States, had deprived the 
Treasury of all the facilities of transferring its 
funds from place to place ; and a proposition 
which was made, at an early period, to the prin- 
cipal banks of the commercial cities on the line of 
the Atlantic, with a view in some degree to restore 
those facilities, could not be effected for the want 
of a concurrence in the requisite number of banks. 
Hence it has happened (and the duration of the 
evil is without any positive limitation) that, how- 
ever adequate the public revenue may be, in its 
general product, to discharge the public engage- 
ments, it becomes totally inadequate in the process 
of its application, since the possession of public 
funds in one part no longer affords the evidence of 
a fiscal capacity to discharge a public debt in any 
other part of the Union. 

"From the suspension of specie payments, and 
from various other causes, real or imaginary, dif- 
ferences in the rate of exchange arose between 
the several States, and even between the several 
districts in the same State ; and the embarrass- 
ments of the Treasury were more and more in- 
creased, since Congress had not sanctioned any 
allowance on account of the rate of exchange, and 
the amount of the legislative appropriations was 
the same wherever the legislative objects were to 
be effected. But the Treasury notes partook of 
the inequalities of the exchange in the transactions 


of individuals, although the Treasury could only 
issue them at their par value. The public stock, 
created in consideration of a loan, also partook of 
the inequalities of the exchange, although, to the 
government, the value of the stock created, and 
the obligation of the debt to be discharged were 
the same, wherever the subscription to the. loan 
might be made. 

" Thus, notwithstanding the ample revenue pro- 
vided and permanently pledged for the payment 
of the public creditor, and notwithstanding the 
auspicious influence of peace upon the resources 
of the nation, the market price of the Treasury 
notes and of the public stock was everywhere 
far below its par or true value for a considerable 
period after the adjournment of Congress, vibrat- 
ing, however, with a change of place, from the 
rate of seventy-five to the rate of ninety per cent. 
Payments in bank paper were universally pre- 
ferred, during that period, to payments in the 
paper of the government ; and it was a natural 
consequence that, wherever the Treasury failed in 
procuring a local currency, it failed also in mak- 
ing a stipulated payment. 

"Under these extraordinary and perplexing 
circumstances the great effort of the Treasury 
was, 1st, to provide promptly and effectually for 
all urgent demands, at the proper place of pay- 
ment, and for the requisite amount of funds ; 2d, 


to overcome the difficulties of the circulating me- 
dium, so far as it was practicable, so that no cred- 
itor should receive more, and no debtor pay less, 
in effective value, on the same account, than every 
other creditor or every other debtor ; and, 3d, to 
avoid any unreasonable sacrifice of the public 
property, particularly when it must also be at- 
tended with a sacrifice of the public credit. It 
was not expected that this effort would everywhere 
produce the same satisfaction and the same results ; 
but the belief is entertained that it has been suc- 
cessful in the attainment of its objects, to the ex- 
tent of a just anticipation." 



Congress on the 10th of April, 1816, author- 
ized a United States Bank at Philadelphia. The 
charter was limited to twenty years, and the capi- 
tal fixed at $35,000,000, $7,000,000 of which was 
to be subscribed by the government, payable in 
coin or in United States stocks ; the remainder by 
individuals, one-fourth payable in coin, and three- 
fourths in coin or United States stock. Branches 
of this bank were authorized at several places, 
and the notes of the bank payable on demand 
were made receivable in all payments to the 
United States. The moneys of the government 
were to be deposited in the bank or its branches, 
and the penalty imposed upon the bank for refus- 
ing to pay its notes or deposits in coin, on de- 
mand, was fixed at twelve per cent per annum, 
until the amount due was paid. In consideration 
of the privileges conferred by Congress, the bank 
was to pay to the United States $1,500,000. It 
went into operation in January, 1817, at perhaps 


the worst stage of the monetary troubles of that 
period. From the outset it was surrounded by 

In April, 1818, the amount of its discounts and 
exchange balance had swollen to $13,000,000, but 
it had been able to put into circulation less than 
the amount of $10,000,000 ; not on account of any 
disinclination of parties to receive the notes, but 
because the president and cashier could not sign 
as many as were wanted. Application was there- 
fore made to Congress for authority for like 
officers in the branch banks to sign notes, but 
Congress refused, allesino; that such action would 
prevent that uniformity of notes for which the 
bank had been specially created. The bank, to 
sustain itself, imported specie in exchange for the 
funded debt it held, but, there being no demand 
for it for circulation, it was exported by individu- 
als as rapidly as imported by the bank, and at no 
time was there an amount of over $3,000,000 in 
its vaults. 

In July, 1818, the bank began to curtail its 
discounts and demand payment of all obligations 
due from other banks, alleging that such action 
was necessary on account of the premium on 
specie. In three months and ten days a reduction 
in discount was made amounting to $4,500,000, 
mainly in the four principal cities. This sudden 
contraction had a disastrous effect upon the mer- 


chants, and through them upon the rest of the com- 
munity. The bank also ordered that the mother 
bank at Philadelphia should thereafter receive no 
notes except its own ; and each one of the branches 
no notes except those of that one branch. The 
mother bank called upon the branch banks for the 
payment of their respective obligations, and they 
in turn had to call in their own loans sharply, 
bringing great distress and many failures in busi- 

About this time whisperings were heard that 
Congress was coming to the relief of the country 
in some mysterious way. Niles, in his Register of 
October 3, intimated that a grand scheme was on 
foot to keep the paper-mill going — nothing less 
than the substitution of a paper currency as a 
legal tender instead of coin. In his Register of 
November 7 he says, — 

" We have several times darkly hinted at a 
great intrigue which was going on to relieve the 
banking system, generally, and especially to sub- 
serve the grand views of the Bank of the United 
States. I am just now informed of what this in- 
trigue is ; but private honor will not permit me to 
mention it at present. The object is, by bits of 
paper to prevent the banks from being compelled 
to pay their debts. This is the long and short of 
the whole affair. Aye, and the pretence is most 
specious, the appearance most seducing, but the 


instantaneous effect will be to banish money, and 
bring about those happy times when lordly banks 
issued notes for six and a quarter cents, and a 
copper coin was a rarity. . . . Upon my con- 
science I would rather agree to have a hereditary 
President and a Senate for life than that this tiring 
should happen. In the latter case our President 
and Senators might be influenced to good actions 
by a sense of individual shame or a love of true 
glory, and the choice of representatives would be 
left free to us ; but in the other, an unknown and 
irresistible aristocracy would be raised up, secret 
as the Council of Ten and remorseless as the Holy 
Inquisition. Give me to live under any despotism 
but that which springs from the command of 
money ; for it is the most base and unprincipled 
of all. 

"But Congress will not, cannot, dare not, pass 
the law proposed to pamper speculation. They 
may prohibit the exportation of coin if they 
please ; still they cannot substitute a paper me- 
dium for it, and compel me to take it in payment 
of debts justly due me. And this it is which Is 
fondly designed to be attempted — for the benefit 
of the rag-barons." 

No relief came, however, and on the 9lh of 
April, 1819, at a meeting of the directors of the 
bank, means of relief were agreed to as follows : 
" To continue the curtailment of discount, to tor- 


bid the branch offices south and west to issue their 
notes when exchanges were against them ; to 
collect balances due by local banks to the offices ; 
to ask of the government time to transfer mon- 
eys from one office to another, as they might 
be needed for disbursement, and to obtain a loan 
in Europe for $2,500,000." These measures were 
actively carried into effect, and they lifted the bank 
from extreme prostration to a state of safety and 
some power, but at tlje expense of the local banks 
and the business community. " The bank saved 
itself, but the people were ruined," says one writer. 
In 1832 the bank applied to Congress for a 
renewal of its charter, which would expire in 
1836. Congress passed a bill for its re-charter, 
but it was vetoed by the President July 10, 1832. 
The bank had specie enough to pay all its obliga- 
tions to the government, but it kept up the strin- 
gency for political effect, and used its power and 
influence to embarrass and defeat the administra- 
tion. Probably the affairs of the bank had not 
at all times been administered with wisdom and 
discretion ; but in 1830 the finance committee of 
the Senate had said : " They are satisfied that the 
country is in the enjoyment of a uniform national 
currency, not only sound and uniform in itself, but 
perfectly adapted to the purposes of the govern- 
ment and the community, and more sound and 
uniform than that possessed by any other nation." 


On the 23d of September, 1833, announcement 
was made that on the first of the next month the 
public deposits would be removed to the State 
banks. The transfer was made, and it created a 
political turmoil of unprecedented bitterness. The 
State banks receiving the public deposits, being 
favored by large importations of specie, expanded 
their loans and circulation, and another wave of 
speculation rolled over the country. Money being 
plenty, and dividends easily obtained, immense 
purchases of public land was made by speculators, 
for which the government was paid largely in 
notes of State banks, of questionable values. With 
the largely increased receipts the government paid 
off its entire indebtedness, and still had nearly 
fifty millions, for which it had no use, lying idle 
in the banks. This idle capital stimulated the 
fever of speculation already fiercely raging. 

The bank did not wind up its affairs in anticipa- 
tion of the expiration of its charter in 1836, but 
obtained another charter from the legislature of 
Pennsylvania. The act granting it was entitled 
"An act to repeal the State taxes on real and per- 
sonal property, and to continue and extend the 
improvement of the State by railroads and canals ; 
and to charter a State bank to be called a United 
States bank." The obligations imposed upon the 
bank in consideration of the issue of this charter 
could not have fallen short of $5,000,000, if it had 


lived long enough to meet the charges imposed. 
The bank suspended specie payments with the 
State banks, and soon after organizing under its 
new charter succumbed to trials which perhaps 
more prudent management might have averted. 

A financial giant, however, such as was this 
institution, did not expire without a struggle. In 
1839 it got the New York banks in its toils, and 
brought them to the verge of ruin. Two years 
later, Sampson-like, it laid hold of the pillars 
of the financial temple, and signalized its death by 
a general crash. The circulating notes and depos- 
its of this soulless corporation were eventually 
paid in full, but no dividends were paid to the 
stockholders. The whole $28,000,000 subscribed 
was a loss to them. The government, in the end, 
lost nothing by the bank ; but the action of the 
President in severing from it all fiscal operations 
of the government appears at this day to have 
been justifiable and fortunate. 



From 1857 to 1861 the country enjoyed abun- 
dant prosperity. The value of its exports to for- 
eign countries during these three years exceeded 
that of its imports by $100,000,000. The banks 
held a strong reserve of specie, and their circula- 
tion "was not deemed excessive. In 1860 their 
circulation was $207,000,000 and their deposits 
$254,000,000, against which amounts was held a 
reserve of $103,000,000, of which $80,000,000 
was specie. 

Notwithstanding the general prosperity of the 
country, the public expenditures had since 1857 
been greater than the receipts to the amount of 
about $90,000,000, which deficit had been pro- 
vided for by public loans. 

Congress met in December, 1860. The gov- 
ernment was threatened with disruption by civil 
war. The public offices at Washington were 
filled mainly by the conspirators themselves, or 
those in sympathy with them. The public trea- 
sury was empty, and the public credit impaired. 



How to meet the current expenses of the govern- 
ment was the problem which confronted this Con- 

Measures for issuing another loan were imme- 
diately taken, and on December 17 an act was 
approved authorizing the issue of $10,000,000 of 
Treasury notes, payable in one year, to bear the 
lowest rate of interest at which the notes could be 
sold at par. The rates ranged from six to twelve 
per cent per annum. In the month of February, 
following, the necessities of the government com- 
pelled the issuing of another loan. This was not 
to exceed $25,000,000, was to run twenty years, 
and bear interest at six per cent. About $18,000,- 
000 were issued at the rate of $100 of loan for 
$89.03 in specie. 

On March 22, 18G1 another loan was author- 
ized — this time Treasury notes to bear six per 
cent interest, and to run two years. They were 
made receivable in all payments to the government, 
and consequently were disposed of at a slight 

Before the issue of these notes was authorized 
many of the Southern members had left Congress 
to participate in the Rebellion. Two days after 
the approval of the act Mr. Lincoln was inaugu- 
rated as President, and a few days later Mr. 
Salmon P. Chase was confirmed as Secretary of 
the Treasury. 


On July 4 Congress convened by special 
proclamation of the President. Eleven States were 
in actual rebellion. Seventy-five thousand volun- 
teers had been called into the field, and the capi- 
tal city was a military camp. The Secretary of 
the Treasury called upon Congress for means to 
meet the extraordinary expenses. He estimated 
the expenditures for the year ending June 30, 
1862, at $318,000,000. Vast and unprecedented 
as was this sum, it proved $240,000,000 less than 
the amount expended. 

Congress, in answer to the call, on July 17 
authorized a loan of $200,000,000, and provided 
that $50,000,000 thereof might be in Treasury 
notes in denominations of not less than $5, payable 
on demand, not bearing interest, and reissuable 
until December 31, 1862. They were known as 
demand notes. 

The first instalment of these notes was issued 
in August following, and was paid to the clerks in 
the departments for salaries, and to other creditors 
of the government. Although redeemable at sight 
in coin, the notes were received with reluctance ; 
and to give them credit the principal officers of 
the Treasury Department signed a paper agreeing 
to accept them in payment of their salaries. Many 
of the hanks refused to take them at par, but as 
the government accepted them in payment of dues 
they soon came to be preferred to the notes of the 
State banks. 


At this time the banks had increased their specie 
reserve to $87,000,000, their circulation and de- 
posits remaining substantially unchanged. 

To the banks the Secretary applied for an ad- 
vance of $50,000,000, in the form of a loan for 
seven-thirty three-year bonds ; the amount to be 
reimbursed to the banks, as far as practicable, 
from the proceeds of similar bonds to be sold 
throughout the country direct to the people, 
through loan agencies which had been established. 

On August 19 representatives of the leading 
banks in New York, Boston, and Philadelphia 
met the Secretary in the first named city, and a 
full and unreserved conference was held. The 
banks demanded better terms than the Secretary 
offered, but this official was firm, and expressed 
a hope that they would take the loan on the terms 
he offered. " If not," he said, " I will go back to 
Washington and issue notes for circulation, for it 
is certain the war must go on until the rebellion is 
put down, if we have to put out paper until it 
takes a thousand dollars to buy a breakfast." 

The banks advanced the $50,000,000 needed, 
in specie, of which about $45,000,000 was re- 
turned to them from the proceeds of public sub- 
scriptions, and for the remainder seven-thirty 
three-year bonds were issued as provided ; and 
the alternative presented by Mr. Chase was avoid- 
ed. The reimbursements to the banks enabled 


them to make another loan in like manner upon 
the same terms, and through these means the Sec- 
retary obtained at par $100,000,000 in specie for 
three years at 7j s D - per cent interest per annum. 

This showed a marked improvement in the con- 
dition of the public credit. Three months before, 
when there was a strong probability that the war 
might be averted, the government paid as high 
as twelve per cent for a portion of a loan of 
$10,000,000. But now the government, although 
smarting; from the humiliating wounds of Bull 
Run, obtained ten times the amount at a rate of 
interest much more favorable. Confidence in the 
measures and the men of the new administration, 
as compared with those of the former one, was 
the main instrument in bringing about this favor- 
able change. Patriotism, perhaps, went for some- 

Abroad, however, especially in England, the 
credit of the country was at a very low ebb. On^ 
Sunday, after the defeat at Bull Run, the British 
agent at Washington for the London bankers 
through whom our government business was trans- 
acted, called upon Mr. Harrington, Assistant Sec- 
retary of the Treasury, to give security for the 
balance due of about $40,000. Mr. Harrington 
directed him to call on Monday, as the govern- 
ment would not probably break up before business 
hours next day. 


The London Times concluded an article about 
these operations by exclaiming : " What strength, 
what resources, what vitality, what energy there 
must be in a nation that is able to ruin itself on a 
scale so transcendent and magnificent." 

The pressure for providing means for carrying 
on the war still continued, however, and the Secre- 
tary applied to the banks for a third loan. They 
were unwilling to take any more of the seven- 
thirty bonds, as little market could be found for 
them among their customers. The Secretary there- 
fore offered, and the banks accepted, $50,000,000 
of the twenty-year loan, authorized by act of July 
17, 1861, a sufficient discount being allowed to 
make the loan equivalent to one bearing interest 
at seven per cent, a less rate than that of the 

Meanwhile the banks had persistently and con- 
stantly urged the Secretary to forego the issue of 
Treasury notes, which were circulating as money, 
and to draw upon them for coin in payment of 
their subscriptions. 

To a question of the Secretary the New York 
banks replied : " In New York we are entirely 
willing to pay in coin ; in any other cities in what- 
ever funds the check holders may demand, in coin 
if the creditors insist upon coin and the bank is 
willing and able to pay in coin, but otherwise in 


To this the Secretary would not consent, al- 
though at that time no payment to public creditors 
in coin, when demanded, had been refused by any 
of the banks. He said : " If you can lend me all 
the coin required to conduct the operations of the 
war, or show me where I can borrow it elsewhere 
at fair rates, I will withdraw every note already 
issued, and pledge myself never to issue another ; 
but if you cannot, you must let me stick to United 
States notes, and increase their issue just so far as 
the deficiency of coin may make necessary." This 
was the reply of Secretary Chase on November 
16, 1861, to the bankers with whom he had just 
negotiated the $50,000,000 loan. 

The policy therein avowed was the first step 
taken towards that inflation of the currency which 
subsequently played so important a part in all the 
affairs of the country, and from whose unhappy 
effect we are not yet free. 

The necessity of taking such a step is far from 
evident. The government during that year had 
negotiated $250,000,000 of loans, of which less 
than $30,000,000 was in Treasury notes. These 
notes, however, had come into competition with the 
paper issues of the banks, and were rapidly driving 
them from the channels of circulation which they 
had previously occupied. The bank-notes, not 
being needed for circulation, were returned to the 
banks for redemption. As the banks were putting 


forth their best energies to place the loans they 
had taken of the government, they naturally did 
not want their notes to come in at that time for 
redemption, as they inevitably must if the issue of 
Treasury notes continued, and the urgent demand 
of the banks upon the Secretary to put no more 
Treasury notes in circulation seems natural and 

Had the Secretary yielded to the request of the 
banks, and the government accepted the bank 
issues in payment of dues, the demand for such 
issues would have increased rather than dimin- 
ished ; the banks would have been relieved from 
any necessity of redeeming them in coin, and 
could easily have paid specie to the government 
for the loan which they had just taken. But the 
resolution of the Secretary was unalterable, and 
the evil which he was trying to prevent became 
inevitable. The banks being obliged to take care 
of their notes, and at the same time to pay specie 
to the government, were unable to meet the de- 
mands upon them, or at least thought they were, 
and on December 27, 1861, they yielded to the 
pressure and suspended specie payment. 

For this action the Secretary appears to be 
mainly responsible. The amount of outstanding 
circulation of the banks had at that time been 
reduced $183,000,000, and the specie reserve 
increased to $102,000,000 ; and during the fiscal 


year of 1861 the excess of imports ot specie over 
exports amounted to more than $16,000,000, a 
balance more favorable than that of any year since 
1847. Careful estimates since made have fixed 
the amount of specie in circulation at the time of 
the suspension at about $250,000,000. The large 
expenditures of the government for 1861 had been 
made in specie, but this specie, when paid out, 
soon found its way back to the banks where it 
was needed, and there had been at no time during 
the year the slightest embarrassment arising from 
any lack of specie as a circulating medium. In 
the action taken by the Secretary there was noth- 
ing to be gained, and experience has shown that 
the integrity of the country was to be lost. 

Consequent upon the action of the banks there 
was but one thins; for the government to do, and 
it did it. On January 1, 1862, it dishonored its 
own promises — it ceased paying coin. Gold was 
immediately at a premium, in paper, of two per 
cent, and the Secretary, who would not in Novem- 
ber employ banknotes circulating at par, was 
compelled to make payments to creditors in the 
government's oavii depreciated paper. In fleeing 
from an imaginary Scylla he had struck a real 

Congress, meanwhile, was actively preparing 
measures for raising more money. Mr. Spauld- 
ing, a member of the House from New York, and 


chairman of a sub-committee of the Ways and 
Means Committee, prepared and reported a bill 
which attracted much attention. For the first 
time in the history of the country it was seriously 
proposed to issue bills made a legal tender in pay- 
ment of all debts public and private. 

Much opposition to the legal-tender clause was 
expressed by leading papers throughout the coun- 
try. Delegates from some of the banks in New 
York, Boston, and Philadelphia appeared in Wash- 
ington to oppose the bill. They invited the 
Finance Committee of the Senate, and the Commit- 
tee of Ways and Means of the House, to meet 
them at the office of the Secretary of the Treasury 
on January 11, 1862. The invitation was accepted, 
and the convention assembled accordingly at the 
Treasury Department. The whole scheme was 
thoroughly discussed, and the New York "Trib- 
une " reported the discussion as follows : — 

'The sub-committee of Ways and Means, through 
Mr. Spaulding, objected to any and every form of 
' shinning ' by Government through Wall or State 
streets to begin with ; objected to the knocking 
down of government stocks to seventy-five or 
sixty cents on the dollar, the inevitable result of 
throwing a new and large loan on the market 
without limitation as to price ; claimed for Treas- 
ury notes as much virtue of par value as the notes 
of banks which have suspended specie payment, 


but which yet circulate in the trade of the north ; 
and finished with firmly refusing to assent to any 
scheme which should promote a speculation by 
brokers, bankers, and others in the government 
securities, and particularly any scheme which 
should double the public debt of the country, and 
double the expenses of the war by damaging the 
credit of the government to the extent of sending 
it to f shin ' through the shaving shops of New 
York, Boston, and Philadelphia. He affirmed his 
conviction, as a banker and legislator, that it was 
the lawful policy, as well as the manifest duty of 
the government in the present exigency to legal- 
ize as tender its fifty millions issue of demand 
Treasury notes, authorized at the extra session in 
July last, and to add to this stock of legal tender, 
immediately, one hundred millions more. He 
thought that this financial measure would carry the 
country through the war, and save its credit and 
its dignity ; at the same time we should insist 
upon taxation abundantly ample to pay the expen- 
ses of the government on a peace footing, and 
interest on every dollar of the public obligations, 
and to give this generation a clear show of a 
speedy liquidation of the public debt." 

It docs not appear, however, that the views of 
the several delegates and those of the public offi- 
cials were brought into harmony. 

On January 22, 1862, a bill was introduced in 



the House authorizing the issue of $500,000,000 
six per cent bonds, and $100,000,000 of Treasury 
notes. The framers of the bill had concluded to 
make the notes authorized a legal tender, and the 
bill therefore provided that there should be printed 
on the back of the notes the following words : 
" The within note is a legal tender in payment of 
all debts, public and private, and is exchangeable 
for bonds of the United States bearing six per 
cent interest." 

This legal tender provision w T as ably and thor- 
oughly discussed in the House. The Secretary 
urged the passage of the bill, though expressing a 
strong dislike to making anything but coin a legal 
tender in payment of debt. He hoped that the 
notes would be speedily converted into bonds, and 
the bonds made a basis for the circulation of the 
banks ; and with this hope he became reconciled to 
the enactment of a measure which as Chief Justice 
he afterwards declared to be unconstitutional. 

The measure was opposed by all the Democratic 
members of the House, and by many of the promi- 
nent Republicans ; and even the friends of the 
measure gave it only a reluctant support, regret- 
ting the necessity which seemed to call for a meas- 
ure fraught with so many possible evils. 

A prominent Democratic member urged that the 
policy of forcing a paper currency upon the coun- 
try w r as a dangerous experiment ; that it would 


lead to other issues ; that gold and silver would be 
banished from circulation, and an immense infla- 
tion would take place. " Cheap in materials, easy - ** 
of issue, worked by steam, signed by machinery, 
there will be no end to the legion of paper 
devils which shall issue forth from the loins of the 
Secretary." */ 

In after years, and when his vision proved a 
reality, he and most of his party friends defended 
the " paper devils," declaring that the machine- 
made currency was the best the world ever saw, so 
good, in fact, that nobody would take it from us. 
The opinions of such men need not therefore be 
further considered at present. 

Mr. Morrill, of Vermont, at present a senator 
from that State, opposed with much ability the 
provisions of the bill making notes a legal tender, 
declaring that if so made they would, to the extent 
that they were tendered as public dues, be a forced 
loan, and that, to the extent of the difference 
between their current value and that of standard 
coin, they would bo a breach of public faith ; that 
upon their issue the cost of carrying on the war 
would be vastly increased ; that prices would go 
up ; and that the addition we should pile upon our 
national debt would prove that it might have been 
wiser to have burned our paper dollars before they 
were issued. 

Mr. Roscoe Conkling, of New York, opposed 


the measure with his characteristic vehemence. He 
declared that the country was full of wealth ; that 
the harvests had been abundant ; that nearly every 
loyal State teemed with the elements of material 
prosperity ; that the passage of the act would pro- 
claim throughout the country a saturnalia of fraud, 
a carnival for rogues ; that every person who 
had received for others money would release him- 
self from liability by paying back in the spurious 
money which we should put afloat ; that every- 
body would do it except those who are more honest 
than the American Congress advised them to be. 
He declared that the whole scheme presupposed 
that the notes to be emitted would be lepers in the 
commercial world from the hour they were brought 
into it ; that they would be shunned and con- 
demned by the laws of trade and value. If that 
was not to be their fate, there was no sense in 
attempting to legislate upon their value. He be- 
lieved that all the money needed could be provided 
in season by means of unquestionable legality and 

Mr. Lovejoy, of Illinois, also opposed the bill. 
He did not believe it was in the power of any 
legislative bodv to make something out of nothing ; 
that a piece of paper stamped as five dollars, un- 
less it was convertible at sight into a five-dollar 
gold piece, was not five dollars, but a delusion and 
a fallacy. 


Pie proposed the following, which would seem 
to have been a vigorous outline of the policy which 
would be commended by the opponents of the bill : 

"1st. Adequate taxation, if need be, to the ex- 
tent of $200,000,000. 

M 2d. Adopt legislation that shall compel all 
banking institutions to do a business on a specie 
basis. Every piece of paper that claimed to be 
money, but was not, I would chase back to the 
man or corporation that forged it, and visit upon 
them the penalties of the law. I would not allow 
a bank-note to circulate that was not constantly, 
conveniently, and certainly convertible into specie. 

" 3d. I would issue interest-bearing bonds of 
the United States, and go into market and borrow 
money and pay the obligations of the government. 
This would be honest, business-like, and, in the 
end, economical. This could be done. Other 
channels of investment are blocked up, and capi- 
tal would seek the bonds for investment." 

And he added: "This is, in substance, what I 
propose. This would bring us through the war 
poor indeed, for half the nation has to support the 
other half, but with the health and vigor of the 
athlete, and not with the bloated flesh of the beer 
guzzler. Did I not know that the passage of this 
bill was a foregone conclusion, I would move to 
recommit, with instructions to that effect." 

Mr. Spaulding, the putative father of the bill, 


summed up his ideas by stating, in effect, that if 
the notes were given a legal-tender quality they 
would become a standard of value, and, compared 
with themselves, they would not depreciate. The 
statement suggests Mr. Bunsby. 

Mr. Stevens, chairman of the Ways and Means 
Committee, closed the debate, speaking urgently 
in favor of the bill. He argued at length upon the 
constitutionality of the measure, taking the ground 
that Congress alone could decide whether the 
measure was necessary and proper to raise and 
support armies, this discretion having been con- 
fided to it by the Constitution ; and once decided 
by that department no other department of the 
government could re-judge it. The Supreme Court 
might think the judgment of Congress erroneous, 
but they could not review it. Concluding that 
the measure was constitutional, he inquired as to 
its expediency. 

"All admit the necessity of the issue, but some 
object to their being made money. It is not easy 
to see how notes issued without being made imme- 
diately payable in specie can be made any worse 
by making them a legal tender, and yet that is the 
whole argument so far as expediency is concerned. 
Other gentlemen argue this would impair con- 
tracts by making the debt payable in other money 
than that which existed at the time of the contract, 
and would so be unconstitutional. Where do 


gentlemen find an} T prohibition on Congress against 
passing laws impairing contracts? There is none, 
though it Avould be unjust to do it ; but this im- 
pairs no contract. All contracts are made not 
only with a view to present laws, but subject to 
the future legislation of the country." 

Later he stated : " Our project proposes United 
States notes secured at the end of twenty years, 
to be paid in coin, and the interest raised by taxa- 
tion semi-annually ; such notes to be money, and 
of uniform value throughout the Union." 

From this it would appear that the policy of 
paying the bonds at maturity in depreciated notes, 
as afterwards advocated by him, was an after- 
thought on his part. 

The bill passed the House by a vote of ninety- 
three to fifty-nine. It increased the amount of 
the proposed issue to $150,000,000, of which 
$50,000,000 were to be issued in lieu of the 
same amount of notes authorized by act of July 
17, 1861. 

The bill was immediately sent to the Senate, 
and there referred to the committee on finance, 
of which Mr. Fessenden was chairman. 

Meanwhile the Secretary, fearing that the Treas- 
ury might be embarrassed by the probable delay 
in procuring the passage of the bill, asked author- 
ity to issue $10,000,000 of Treasury notes in 
addition to the $50,000,000 already authorized. 


A bill to that effect was promptly passed, and be- 
came a law February 12, 1862. 

Mr. Fessenden reported the House bill to the 
Senate with certain amendments, of which the 
most important ones were : 

That the notes should be receivable in all claims 
against the United States, of whatever kind, ex- 
cept for interest on bonds and notes, which should 
be paid in coin ; and another section was added 
providing that all duties on imported goods and 
proceeds of the sale of lands should be set apart 
to pay coin interest on the debt, and, of the re- 
mainder, a certain portion for a sinking-fund. 

The bill did not yet provide that the duties on 
imports should be paid in coin. 

Mr. Fessenden opposed the bill in a lengthy 

He saw no reason for a loss of credit by the 
conduct of the war. He alleged that a measure 
of this kind could not increase confidence in the 
ability or integrity of the country ; that it was, in 
fact, a confession of bankruptcy ; that we began 
with a declaration that we were unable to pay or 
to borrow, and that such a declaration was not 
calculated to increase our credit ; that it would 
inflict a stain upon the national honor ; that it 
would change the value of all property ; that there 
would follow inflation, subsequent depression, and 
all the evils which flow from an inflated currency ; 


and that the loss would fall most heavily upon 
the poor by reason of the inflation. 

Mr. Collanier, of Vermont, claimed that the bill 
was unconstitutional, and even if it was a necessity 
he could not vote for it ; that there were two 
modes of replenishing the Treasury, one by tax- 
ation, and the other by borrowing money ; that 
to borrow money there must be a lender and a 
borrower, and both should act voluntarily, and 
that the borrower should not compel the lender to 
part with his money without an inducement ; and 
that the operation of the bill w r as not as honor- 
able or honest as a forced loan. He had no doubt 
the country was able to sustain itself pecuniarily 
as well as physically. He, for one, desired that 
it should ; he did not want it done by saying that 
now, because the necessity requires money, he 
would go and steal it or authorize anybody else to 
steal it. 

Mr. Sherman made an elaborate speech in favor 
of the bill, grounding his argument upon the 
necessities of the hour. 

He stated that $100,000,000 was then due the 
army, and that $250,000,000 more would be 
due by July 1 ; that the banks had already ex- 
hausted their capital in making loans to the gov- 
ernment ; that bonds could not be sold except at 
great sacrilicc, because there was no money to buy 
them ; that bonds could not be sold for gold and 


silver, which was then the only money which could 
be received under the sub-treasury law, and that 
it was necessary to make the currency a legal 
tender to aid in making further loans. The only 
objection he had to the measure was, that too many 
notes might be issued. He did not believe the 
issue of $150,000,000 would do any harm ; it was 
only a temporary expedient, however, and should 
not be repeated. 

Mr. Sumner also favored the bill in an elaborate 
and able speech. He recognized that in the exi- 
gency money must be had ; and he argued that the 
Constitution gave ample powers to Congress to 
clothe the notes proposed to be issued with legal 
tender power. Still he thought it was hard, very 
hard, to think that a country so powerful, so rich, 
and so beloved should be compelled to adopt a 
policy of even questionable propriety. He argued 
that we must of necessity maintain the integrity of 
the government, and must all set our faces against 
any proposition like the present, except as a 
temporary expedient rendered imperative by the 
exigencies of the hour. "Others may doubt if the 
exigency is sufficiently imperative ; but the Secre- 
tary of the Treasury, whose duty it is to . under- 
stand the occasion, does not doubt. In his opinion 
the war requires the sacrifice. Uncontrollable pas- 
sions have been let loose to overturn tranquil con- 
ditions of peace. Meanwhile your soldiers in the 


field must be paid and fed. Here, then, can be no 
failure or postponement. A remedy which at an- 
other moment you would reject is now proposed. 
Whatever may be the national resources, they are 
not now within reach, except by summary pro- 
cess. Reluctantly, painfully, I consent that the 
process should issue. And yet I cannot give such 
a vote without warning the government against the 
dangers from such an experiment. The medicine 
of the Constitution must not become its daily 
bread. Nor can I disguise the conviction that 
better than any legal tender will be vigorous, 
earnest efforts for the suppression of the rebellion, 
and for the establishment of the Constitution in its 
true principles over the territory which the rebel- 
lion has usurped." 

Mr. Doolittle moved to limit the legal tender 
clause to " debts thereafter contracted ; " but the 
amendment was not adopted. 

The bill passed the Senate by a vote of thirty 
to seven, Mr. Fessenden finally waiving his 
scruples and voting for it. 

In the House the Senate amendments met with 
determined opposition. It was alleged that they 
created two kinds of money, one for the bond- 
holder, and one for the other creditors of the 
country ; that in providing coin to be paid for 
interest the government had tied its hands, as no- 
body could tell where the coin was to come from. 


Mr. Stevens especially opposed the amendments, 
declaring that we were discriminating against the 
notes and thus depreciating their value at the out- 
set. He said it was his expectation that no more 
of the notes would ever be issued, and that by 
using them for all purposes as money they could 
be easily maintained at par with coin ; and he 
hoped and expected they would be. 

Most of the Senate amendments were, however, 
concurred in. A final conference between the two 
houses added a clause providing, that duties on 
imported goods should be paid in coin. 

The bill became a law on the February 25, 
1862. It authorized the issue of $150,000,000 
United States notes, not bearing interest, payable 
to bearer, of such denominations as the Secretary 
of the Treasury might deem expedient, not less 
than five dollars each ; that $50,000,000 of this 
issue should be used in taking up the notes issued 
under the act of July 17, 1861 ; that the notes 
should be receivable in payment of all taxes, in- 
ternal duties, excises, debts, and demands of every 
kind due to the United States except duties on im- 
ports, and all claims and demands against the 
United States of every kind whatsoever, except, 
however, interest upon bonds and notes, which 
should be paid in coin ; and that the notes should 
also be lawful money and legal tender in payment 
of all debts public and private within the United 


States, except duties on imports and interest as 
before stated. It also provided that the notes 
might be converted into the six per cent bonds 
authorized by the act, and that the notes might be 
reissued from time to time as the exigencies of 
the public service should require. 

It is noticeable that throughout all the debate 
only reluctant support was given to the measure ; 
that its friends believed that the evils appre- 
hended would be counteracted by the authority to 
convert the notes into interest-bearing bonds ; and 
that the notes themselves, taking the place of 
the issues of the State banks, would furnish a cir- 
culating medium, the demand for which would be 
such as to keep them substantially at par with 



The act authorizing the issue of United States 
notes contained no pledge against additional is- 
sues, hut it was generally understood that no 
more of the notes were to be put into circulation. 
But $150,000,000 was not enough, and, upon 
the recommendation of Secretary Chase, Congress 
passed a bill, which the President approved 
March 17, 1862, making the $60,000,000 of out- 
standing demand notes a le^al tender for the same 
purpose and to a like extent as the United States 
notes, the reason being that, as the demand notes 
were payable on demand in coin, they ought to 
circulate at par, but being slightly depreciated, 
some of the banks had refused to accept them as 
money from their customers. With a legal ten- 
der quality, these notes, it was thought, Avould 
pass " without loss to the holders." These were 
the notes which the Secretary, in the previous 
November, had insisted upon putting in circula- 
tion, that public creditors might not, in a possible 
contingency, be required to accept bank-notes, 



although bank-notes, at that time, were circulating 
at par with gold. 

The newly authorized notes were speedily put 
into circulation, and were received throughout the 
country with great favor. When the entire 
amount authorized had been put into circulation, 
gold was quoted at only 1041, and the friends of 
the scheme congratulated each other that they had 
done no worse. The expenses of the war were, 
however, largely exceeding expectations, and on 
June 17, 1862, Secretary Chase applied to Con- 
gress for authority to issue $150,000,000 more 
of such notes, of which sum $35,000,000 was to 
be in denominations of less than five dollars. He 
asserted that, in making payments to the army, 
great inconvenience had been occasioned in satis- 
fying demands of less than that amount ; that 
where coin reached the creditor, it was not held, 
but passed immediately to sutlers and others, 
and disappeared from circulation, a result which 
would have required no prophet to foresee. He 
added, " It may properly be further observed, 
that since the United States notes are made a 
legal tender, and maintained nearly at the par of 
gold, by the provision for their conversion into 
bonds bearing six per cent interest, payable in 
coin, it is not easy to see why small notes may 
not be issued as widely as large ones." He fur- 
ther stated that the daily receipts from customs 


were about $230,000, and that the daily conver- 
sion of the United States notes into bonds did not 
exceed $150,000, while the daily expenditures 
could not be estimated at less than $1,000,000, 
and that he had already exhausted the issue 
of the notes authorized by the act of February 
25, 1862. 

The application of the Secretary was promptly 
granted. Congress now seemed willing to in- 
crease the supply of notes, if, by that method of 
raising money, recourse to taxation, a plan al- 
ways unpopular, could be avoided. And so the 
additional issue asked for was authorized July 
11, 1862. 

The second section of this act authorized the 
Secretary to cause the notes to be engraved and 
printed under his direction at the Treasury De- 
partment in Washington. The organization of a 
force for this purpose was prompt. From the 
employment of one male and four female opera- 
tives, this force grew into a bureau employing, at 
times, as many as eighteen hundred persons. 
Hardly had the organization taken shape when 
scandal began to attach to it, and in consequence 
there was no lack of investigation by Congress 
and the Secretary. For many years it was hardly 
ever free from an investigation of some kind. Ex- 
travagant appropriations were made by Congress 
for its maintenance, and, to keep the unnecessary 


employees busy the officers of the bureau estab- 
lished an elaborate and unnecessary system of 
checks and balances. The bureau opened wide 
its doors to the patronage of any person supposed 
to have influence in securing appropriations for 
its benefit ; consequently it soon partook somewhat 
of the character of a parish alms-house, and a 
general retreat for dependents of politicians, and 
continued so until Secretary Sherman, in 1877, 
with a strong arm cleaned up the establishment, 
returned to the Treasury an unnecessary appropri- 
ation for it of nearly half a million, secured for 
it a proper building, organized its force for 
business only, and took it out of the domain of 
the caucus and the church, the powers which had 
before controlled it. 

The policy of employing women in the public 
departments originated in this bureau, being 
another innovation in the conduct of public busi- 
ness resulting from the use of United States notes. 
The notes were printed in New York, and came 
in sheets from the printer, and women were em- 
ployed to cut them apart and to trim them for 
circulation. Subsequently this work came to be 
done by machinery, and the women were trans- 
ferred elsewhere to copy letters, to count notes and 
stamps, and to fill other positions. 

Congress assembled in December, 18G2, to 
legislate for a country wounded almost unto death 


in the house of those who had been its friends. 
To re-fill the armies at the front, decimated by 
unsuccessful struggles in the field and by the 
fevers of the camp, the government, as a last 
resort, had applied a relentless draft. The public 
treasury was empty, and the pay of the soldiers 
in arrears. The public credit was at a lower ebb 
than ever before in the history of the country. 
The six per cent twenty-year bonds of the gov- 
ernment were freely offered in the market at the 
rate of $100 in bonds for $65 in gold ; and of the 
legal-tender notes $100 could be exchanged for 
$68 of gold. 

Secretary Chase pressed upon Congress, with 
much zeal and great ability, his scheme for organ- 
izing the national banking system, but admitted 
at the same time that at best not much, if any, 
relief from that source could be expected within a 
year ; and again recommended, among other pro- 
jects to meet temporary emergencies, the issue of 
additional United States notes. The notes at that 
time being w T orth more than an equal amount of 
six per cent bonds, the holders would not present 
them for conversion at par, and to make the notes 
less valuable, so that their conversion into bonds 
would surely follow, he recommended that the 
authority to thus convert them be taken away. 
In this wa}' he could, with additional issues, de- 
press their value to almost any extent he desired. 


He argued that, if paper money was in exces3 
of the notes of the country, such excess was not 
due to the issue of United States notes, but to 
the issue of notes by the State banks, which, 
without restriction, had flooded the country. 
That the advance in the price of gold was 
not due to over-issues of United States notes, 
but that gold, being practically demonetized by 
the suspension of the banks, had become a 
mere article of merchandise, subject to fluctu- 
ations such as might occur in other commodi- 
ties. He thought, however, that these notes were 
not in excess, because as much of the great staples 
of life could be bought with them as with an 
equivalent of gold, before that metal disappeared 
from circulation. 

The banks, it is true, had increased somewhat 
their circulation, as they had a right to do, but they 
compelled no one to take their notes, which could 
not be said of the government, whose printing- 
presses were in competition with those of the 
banks. Reference to the price-list for commodi- 
ties of that period clearly shows that the notes 
possessed no such purchasing power as he as- 

Congress acted promptly. On the 8th of De- 
cember Mr. Stevens introduced in the House a 
bill to provide ways and means to support the 
government. Subsequently he said the bill had 


" produced a howl among the money-changers as 
hideous as that sent forth by their Jewish cousins 
when they were kicked out of the temple." Well 
it might. The bill proposed to issue $200,000,000 
of legal tenders, $1,000,000,000 of six per cent 
bonds, and to tax the State banks out of exist- 
ence. With some modification it became a law 
March 3, 1863. 

This act authorized the issue, as the exigencies 
of the service might require, of $150,000,000 
more of United States notes, in every way of like 
character to those already issued. Also an amount, 
not to exceed $400,000,000 of notes payable at 
the pleasure of the government, as might be found 
most beneficial to public interest, not to exceed 
three years, and to bear interest not to exceed six 
per cent in lawful money, and to be issued in 
denominations of not less than ten dollars, and to 
be a les;al tender for their face value to the same 
extent as the United States notes. 

In addition to the amount of United States 
notes issued under the authority of this act, there 
was issued of one-year notes, bearing interest at 
five per cent, $44,520,000, and of two-year notes, 
bearing interest at six per cent, $166,480,000. 

By another provision of this act, the time when 
any of the United States notes could be converted 
at par into six per cent bonds was limited to the 
July 1, 1863, and a duty of two per cent a 


year was levied upon the circulation of the State 

No legal tender notes have ever been issued by 
the government under any other acts. By the 
provisions of an act approved June 30, 1864, 
however, authority was given for the issue of 
Treasury notes, bearing interest, payable at matu- 
rity or at the discretion of the Secretary, and of 
the amount issued those made payable, principal 
and interest, at maturity, if any, should be a legal 
tender, but the interest on the notes thus issued 
was in every case made payable semi-annually, 
and consequently none ©f the notes were by law a 
legal tender. Nor did they purport to be, by any 
legend printed upon them, although the contrary 
has been frequently stated by persons high in 
authority, and who had ample opportunities to 
know better. 

Authority being given by law to reissue indefi- 
nitely any of the United States notes, no care has 
been taken, in reissuing them, to maintain any 
distinction in the character of the notes issued, 
and no one can tell to-day under which of the 
three acts authorizing such notes any one of them 
has been issued. The amount outstanding at one 
time has, however, never exceeded the aggregate 
amount authorized to be issued by the three acts, 
its highest amount having been January 30, 18G4, 
when it reached $449,338,002. The total amount 


of legal tender paper issued by the government, 
exclusive of fractional currency, having a limited 
legal tender quality, may be thus stated : 

United States notes, $449,338,902 

One-year five per cent notes, . . . 44.520,000 

Two-year six per cent notes, . . . 166,480,000 

Total $660,338,902 



Mr. Chase, because of disagreements growing 
out of the appointment of assistant treasurer at 
New York, left the treasury June 7, 1864. The 
dollar was then worth thirty-five cents in coin, 
and the loans, nominally selling at par in paper, 
were in fact being put on the market at sixty-five 
per cent discount. The Secretary, although not 
required by law to dispose of the loans at par in 
paper, evidently believed it bad policy to sell 
them at a discount, otherwise impertinent inquiries 
mi^ht be made concerning; the boasted value of 
the notes. The loans, however, were worth only 
what purchasers would give for them in other 
commodities, no more and no less. Congress 
might, by the exercise of a doubtful power, com- 
pel a creditor to accept less in satisfaction of a debt 
than the contract called for, or it might, under its 
constitutional prerogative to regulate the value of 
money, force upon the country a medium whose 
exchange value for other commodities fluctuated 
violently from day to day ; but to the owner of 



commodities it could not say at what rate he 
should part with them. 

These commodities, which through many pros- 
perous years had been accumulating throughout 
the country, were estimated to have an exchange 
value equivalent to $16,000,000,000 of coin, and 
the owners of these vast accumulations were in 
fact the government itself, and it was their own 
representatives who were calling for aid to make 
this wealth available to carry on the war. 

The government had three practical methods : 

First, to seize commodities wherever found, by 
force, and then to convert them by exchange into 
the form desired. 

Second, to impose a tax by which the owners of 
the commodities should be compelled to deliver a 
portion of their gains from time to time as needed. 

Third, to borrow the commodities with prom- 
ises to return an equivalent at some specified time 
with proper compensation for their use. 

Any one of these methods was proper, manly, 
and honest. 

The first, however, was not to be thought of 
except in extreme necessity. The second, though 
a fair method, would, if carried beyond a certain 
limit, be unpopular even among the most patriotic. 
The third, though requiring time and "shinning" 
through the streets to affect negotiations, was the 
most expedient. 


The government levied a tax to meet a small 
portion of its needs, and undertook to borrow for 
the remainder. For a } f ear or so it was success- 
ful. Through the banks and other fiscal agencies 
owners of wealth were reached, and were induced 
to part with their commodities in exchange for 
government promises, at not unreasonable rates. 
The law of supply and demand fixed the rates as 
it does in other exchanges. 

As the war progressed, however, doubts began 
to be entertained whether the government would 
be able to fulfil its promises as they matured, — in 
fact, whether there would be any government left 
for that or any other purpose ; consequently hold- 
ers of wealth declined to part with it except on 
terms commensurate with the increased risk. The 
supply of commodities, at the same time, grew 
less as the demand increased, and the rates of 
exchange at best were naturally somewhat en- 
hanced. If the government continued to borrow 
it must do so only upon less favorable terms than 
had before existed. The owners of commodities 
had an undoubted right to exaet the best terms 
they could obtain, and there was no alternative 
left for the government but to accept the best 
rates obtainable. 

To do this, however, was regarded by many 
as humiliating to the national pride, and so a loan 
was attempted, to be negotiated in this way : The 


^y, government, in exchange for commodities desired, 
gave to the lender a paper saying to him, in 
effect, " Here is my note for the amount due ; it 
has no specified time for payment, it bears no 
interest, but take it, and if you don't think it is 
good make haste to trade it off on the first person 
you meet, and the faster you run the less you will 
lose." The lender was, however, generally pre- 
pared for the proposition, and he rated his com- 
modities so high that even with this note taken in 
payment he could replace them at a profit. 

Some, however, were not as vigilant ; and it is 
related of one merchant that he sold to the govern- 
ment a hogshead of sugar at twenty per cent 
advance on cost, receiving these notes in payment. 
With the notes received he bous-ht another ho^s- 
head, and sold this with a like advance, and 
repeated the operation until he had neither the 
notes nor suinir left ; although he thought he was 
all the time accumulating wealth. He may have 
thought that the sus;ar was exchanged for value, 

o o o 

but he might as well have made it a gift to the 
government at once, and thus saved time and 

Secretary Chase, members of Congress, and many 
others believed that in issuing such notes the 
country was benefited ; that for nothing it had 
obtained soineth:n<>\ and some went so far as to 
think that wealth was created by such issues. 


They did not know that with the sixth day the 
labor of creation ended, and some there be who 
have not learned it yet. 

The policy of issuing these notes has been justi- 
fied on several grounds : 

First, the notes were a necessity. 

Doubtless in the winter of 1861-2 the govern- 
ment was sorely pressed for means to carry on its 
operations. Its credit was untarnished, however, 
and subsequent events showed there was ample 
wealth in the country to meet all the demands 
necessary. The government had only to levy a 
proper tax, and then to exchange its credit, the 
only commodity it possessed, for what it needed, 
at the best rate obtainable. This rate might seem 
like extortion, but there was no help for it, and it 
was not avoided by the issue of the notes. 

Second, the notes enabled the government to 
obtain money without begging for it. 

The notes themselves were a loan as much as 
though they had coupons attached to them, but 
they had one advantage over other loans. The 
government could not only exchange them for 
commodities, but it could impose them at par 
upon the soldiers in the field, and upon other per- 
sons in its employ whose compensation had been 
fixed by law; and debtors generally could pay 
obligations with them to the extent of an equal 
amount of coin. The difference between the face 


value of the notes at the time of their issue in 
payment of salaries and their value in coin was a 
gain to the government, and to that extent the 
government was benefited, but no further. To 
compensate the soldier for the depreciation in the 
value of the notes his pay was increased, so that 
even in his case the government gained little. In 
purchasing supplies for forces in the field it paid 
prices commensurate with the depreciation of the 
notes. From a table carefully prepared in the 
treasury department, it appears that for the year 
1864 the average coin price in New York of the 
leading commodities was twelve per cent above 
that of the same commodities in 1861, and that 
$110.10 in coin had an average purchasing power 
for 1864 equal to $223.80 in paper. The average 
price of $100 of gold for that year, measured in 
paper, as shown by other official publications, was 
$203.30, or, in other words, $1.00 in gold was 
worth $2.03 of paper. If a purchaser then, with 
$110.10 in gold, had converted it into paper at 
that rate he would have had $223.50, almost pre- 
cisely the amount required to make it of equal 
purchasing power with gold. There could, there- 
fore, be no possible gain in using these notes, and 
coin, or its equivalent, might as well have been 
employed at the outset. 

Third, the notes helped to float the loan. 

The loans were exchanged for commodities at 


the best rates obtainable, — no better and no 
worse, — and the notes had no more to do with float- 
ing them than had the Atlantie Ocean. It is true 
the bonds were exchanged for the notes dollar for 
dollar, but when owners of the notes declined to 
part with them at that rate more notes were issued 
until the value was so depreciated that a bond 
would be accepted for them at par. Mention has 
already been made of an instance where the right 
to exchange these notes for six per cent bonds at 
par was taken away, so that the Secretary could 
force down the price of the notes until the owners 
would be willing to accept for them even a five 
per cent bond at par. In this way and no other 
did the notes float the loan. Had the notes been 
issued for coin the government would have re- 
ceived precisely the same equivalent, the gold 
having a purchasing power correspondingly great. 
Instead of the notes facilitating the issue of loans, 
there is every reason to believe that the govern- 
ment could have obtained better rates for its credit 
if the notes had never been issued. Undoubtedly 
the great cause for the depreciation of the bonds 
was the doubt existing as to the result of the 
stru<™;lc with the rebellion. There should have 
been no other cause. Of wealth to meet the pay- 
ment of the loan at maturity there was an abund- 
ance in the country, and until the issue of these 
notes there had been no occasion to question the 


good faith of the government in all its monetary 
transactions ; and integrity in a government as 
well as in a person has a commercial value. 

Unfortunately, however, the several acts under 
which the loans of the government were issued 
did not state in what kind of dollars the bonds 
would be paid when they became due. Many 
persons asserted that, as the notes were a legal 
tender in the payment of all debts public and 
private, the holders of matured bonds would be 
compelled to accept the notes therefor, whatever 
might be their depreciation, and as the law espe- 
cially specified that the interest on the loans was 
to be paid in coin, there seems strong reasons for 
such assertions. Doubts of this kind could not 
but affect the exchange value of the loans, and 
they did. The purchaser of the bonds had calcu- 
lated the chances of military success, and parted 
with his commodities at a rate which he believed 
was justified by the risks assumed. But when the 
character of the money in which the payment of 
the bonds at maturity was to be made became 
questionable, there entered into his reckoning 
another element of doubt, making the purchase of 
the bond a lottery in which the purchaser had 
against him success in arms and integrity in legis- 
lation. To buy a government bond under such 
conditions was like purchasing a pool on a horse- 
race when the record of the horses was unknown 


and little confidence felt in the integrity of the 
jockeys. Under such circumstances investors de- 
manded, and the government had to give, large 
odds. Thus the notes, instead of floating the 
loans, helped to depress them. 

Fourth, the notes furnished a uniform circulat- 
ing medium. 

When the civil war broke out the government 
had a uniform circulating medium of gold coin, 
supplemented by bank-notes substantially circu- 
lating at par with gold. The gold was a medium 
uniform throughout the civilized world, and bein^ 
everywhere recognized for what it was worth 
could maintain its uniformity of value without 
f dventitious aid. The introduction of these notes 
c/rove the gold from circulation and depreciated 
the value of the bank-notes. In less than a 
3 r ear after their issue the notes had an exchange 
value for other commodities less by thirty per 
cent than when originally issued, and they fluctu- 
ated violently from day to day, all the time 
growing of less and less value, until a witty 
member of Congress suggested an increase in rate 
of duty on paper and dye stuffs, so that in case of 
further issue the notes might not become wholly 
worthless. The notes destroyed a uniform circu- 
lating medium, and such a medium was not re- 
stored until the resumption of 1879, when the 
notes themselves became redeemable in coin. 


They were never uniform except in their varia- 
tions of value. 

Fifth, the notes had an additional value from 
their legal tender quality. 

At the outbreak of the rebellion there was in 
circulation $180,000,000 of bank issues, and an 
estimated amount of $250,000,000 in coin, in all 
about $430,000,000. "We have before seen that 
money left to itself will always equal the precise 
amount needed to effect the exchanges of products. 
As gold was the medium circulating in Europe, 
any excess in this country in 18G1 would have 
gone there until the equilibrium of circulation 
between the countries was restored. None went, 
but in fact a small amount came into the country 
from Europe in that year, indicating that the 
amount in circulation here had somewhat passed 
the minimum limit and was being restored. We 
have also seen that if a circulating medium be- 
comes excessive through artificial restraint, prices 
of commodities will be correspondingly raised. If 
two dollars exist where there is a demand for only 
one, nobody will give of his commodities for both 
dollars more than he would for one, there being, 
practically, no use for the extra dollar. Whether 
the circulating medium is gold, silver, copper, or 
paper the same rule is true. 

In 1861 the business of this country required in 
making exchanges about $430,000,000 in gold 


coin, or equivalents thereto. In 18G4 gold coin 
had been supplanted by legal tender issues, the 
face value of which averaged for that year about 
$840,000,000, and this amount had an average 
value for the year, in gold, of about $420,000,000. 
In addition thereto gold was maintained in circu- 
lation in California, and enough of it in ports of 
entry to meet custom duties. But on the other 
hand, in 1864 eleven States, having a portion of 
the circulation in 1861, were in rebellion, and a 
fair estimate would indicate that on the whole 
there had been no especial demand in 1864 for 
an increased circulating medium. In 1864 the 
exchange, and not the face, value of the notes, 
fixed with an inexorable law the amount of 
them which could be maintained in circulation. 
As notes depreciated, more of them, in amount, 
could be made to circulate, but this increase was 
owing to their decreased value, not to airv extraor- 
dinary quality with which the notes were endowed. 
Four hundred and twenty millions of gold, or its 
equivalent, was the amount of circulation the coun- 
try required in 1864. The issue of notes fur- 
nished this amount, and no more. Other circum- 
stances fixed the value of the notes, and business 
accepted them for circulation at the rate thus 
fixed. Had there been no issue of notes, coin, or 
its equivalent in convert ible paper, would have 
continued to do duty. There was an abundance 


of coin in the country for this purpose. When 
Secretary Chase asked the banks where he could 
get coin to carry on the war, what he wanted was 
wealth, not coin, since the latter would come of 
itself, when needed, if not prevented by legisla- 

The owner of legal tender notes, however, could 
not only exchange them for commodities, but he 
could with them pay debts ; and their use for this 
purpose might possibly give them a little addi- 
tional value over that of notes not enjoying a legal 
tender quality, but the bank notes of the country, 
which no one was obliged to receive for any pur- 
pose, circulated at par with United States notes, 
and so strongly competed for favor that the gov- 
ernment taxed them out of existence. The demand 
notes of the government, before endowed with a 
legal tender quality, circulated generally at par 
with ijold, maintaining a higher rate than that ever 
reached by the legal tender notes until their 
redeemability was secured. The United States 
notes circulated at a discount until within three 
days of the time of redeemability, in itself an indi- 
cation of the futility of effort of the government to 
give to the notes a value which would not be 
recognized by the laws of commerce and trade. 



In 18G1 sixteen hundred bunks, organized and 
operated under the widely differing laws of the 
several States, provided the greater part of the 
currency of the country. Their issues aggregated 
at that time about $200,000,000, their deposits 
$250,000,000 —a total immediate liability of 
$450,000,000, to meet which there was held about 
$116,000,000 of specie, or its equivalent. The 
loans outstanding aggregated about $700,000,000, 
while the capital stock was about $430,000,000. 
Of the capital $110,000,000, and of the circula- 
tion of $50,000,000, were in the seceding States. 

The circulating notes were far from satisfactory. 
Except in the amount of the reserve held against 
them, the banks had a clear profit in their issue, 
and generally the weaker the bank the greater was 
its effort to sustain itself by an excessive issue. 
The notes of even the stronger banks were subject 
to more or less discount, as they were far from, or 
near to, the place of issue. Chicago bills were at 
a discount in New York, and New York bills at a 



discount in Chicago of sometimes as high as five 
per cent. A traveller between the two cities, 
with a capital of §1,000, could pay travelling ex- 
penses b}* a judicious trading of bills, buying the 
depreciated bills in one city to be disposed of at 
par in the other. A conductor on a " through " 
train would often refuse bills outright at one point 
of the line which he received at par at another. 
The use of bank-note detectors was necessary in 
order to ascertain the genuineness of notes, and 
the solvency, or the existence even, of the banks 
of which they purported to be the issue. 

The inferior quality of the paper on which the 
bills were printed, and the imperfections in the 
printing itself, made counterfeiting easy and its 
detection difficult. Trustworthy reports from 
eighteen different States show that in 18(50, out of 
twelve hundred and thirty banks, one hundred and 
forty were broken, two hundred and thirty-four 
r closed, and one hundred and thirty-one worthless. 
There were in existence at that time three thousand 
kinds of altered notes, seventeen hundred varieties 
of spurious notes, four hundred and sixty varieties 
of imitation, and over seven hundred of other 
kinds more or less fraudulent. The various kinds 
of genuine bills in circulation were about seven 
thousand. It* those who tampered with the notes 
were as industrious as were the bank officials in 
putting them into circulation, one might expect, 


by the law of chance, to find that out of every 
eleven notes in circulation five had been tampered 
with and that only six were genuine ; but even the 
genuine ones were at par only near their respective 
places of issue. 

After our experience of twenty years with the 
present currency, we can hardly realize the annoy- 
ances and loss to which the country was subjected 
by the circulation of such bills. The present 
currency, in its purchasing power, may fluctuate 
greatly, but one bill is as good as another of the 
same denomination, and wherever, or b}^ whom- 
soever issued, is received at par everywhere in the 
country. The paper of which the notes are made 
is of the best quality, and of late years has been 
characterized by distinctive marks. The printing 
is done from steel plates of the highest order of 
the engraver's art, thus rendering counterfeiting 
difficult and the publication of detectors almost 
unnecessary. A portion of this currency is issued 
directly by the government, and the remainder by 
the national banks, which have, in issuing bills, 
wholly supplanted the State banks. 

The first suggestion of the national banking sys- 
tem appears to have come from Secretary Chase. 
Thinking at once to get rid of the objectionable 
issues of the State banks, and to substitute there- 
for a currency which would protect holders from 
loss, and at the same time enable the government 


to obtain means for prosecuting the war, he sub- 
mitted to Congress, on the 9th day of December, 
1861, two plans for effecting the object. 

One plan contemplated the withdrawal from cir- 
culation of all the State bank notes, and the issue 
in their stead of United States notes payable in 
coin on demand, in amount sufficient to meet the 
wants of a representative currency. The other 
plan contemplated the preparation and delivery to 
institutions and associations, of notes prepared for 
circulation under a national direction, and secured, 
as to prompt convertibility into coin, by a pledge 
of United States bonds and by needful regula- 

The first of these plans had already been par- 
tially adopted by the issue of demand notes, and 
had the issue of these notes been extended grad- 
ually, with a proper reserve to maintain their 
redeemability in coin, and had the State banks 
been imperatively required to keep their issues at 
par in coin, the country would have had a currency 
as creditable and profitable, perhaps, as any form 
of credit issues. 

But to Mr. Chase this plan presented inconveni- 
ence and hazard. He feared that the temptation to 
issue notes beyond adequate provision for redemp- 
tion would not be resisted, and that there would 
thence arise "the immeasurable evils of dishonored 
public faith and national bankruptcy," and that 


possible disasters which might result therefrom 
would far outweigh any possible benefit. He 
therefore proposed a second plan, which, in brief, 
"was : — 

1st. The circulation of notes bearing a com- 
mon impression, and authenticated by common 

2d. The redemption of these notes by the asso- 
ciations and institutions to which they might be 

3d. The security of the redemption by a pledge 
of United States stocks, and an adequate provision 
of specie. 

He believed that the notes thus issued and 
secured would form the safest currency the 
country had ever enjoyed ; that being receivable, 
as he thought they should be, for all public dues 
except customs, they would be of equal value as 
currency in every part of the United States ; that 
the large amount of specie in the country, esti- 
mated at $275,000,000, would easily support pay- 
ment of duties in coin, and that with such pay- 
ments, and with the ordinary demand, the specie 
would stay in the country, as a solid basis both for 
circulation and loans. 

He expressed great confidence in the plan be- 
cause it was not wholly an untried one. In the 
State of New York, and perhaps in other States, 
it had been subjected to the test of experience, and 


found practicable and safe. He also thought that 
existing: solvent institutions would substitute these 
notes for their own, that the notes of weaker banks 
would disappear, and that the government would 
be greatly benefited by the sale of bonds, to be 
issued as a basis of circulation. 

Such was the scheme presented to Congress by 
Secretary Chase in December, 1861. It met with 
but little favor. In less than two months there- 
after Congress was discussing the policy of issuing 
legal tender notes with no provision for their re- 
demption, and was endeavoring to drag the Secre- 
tary into its support as a last resort for obtaining 
means to carry on the war. It is worthy of note 
that on the 9th day of December the Secretary saw- 
no necessity for suspending specie payments, and 
shrank from such a contingency ; yet at the same 
time that he was thus opposing their issue, he was 
pushing the demand notes into circulation, and 
forcing the suspension which came at the end of 
the month. 

The issue of United States notes under the act 
of February 25, 1862, bridged over the existing 
financial embarrassments, and Congress adjourned 
without considering the proposed plan for a 
national banking system. 

Upon the re-assembling of Congress, in Decem- 
ber following, Mr. Chase, in his annual report, re- 
newed his recommendation of a system of national 


banks, and reinforced it with strong arguments. 
He again expressed his conviction that, while gov- 
ernment notes were preferable to the issue of State 
banks, the circulation to be furnished by national 
banks, as he had recommended, would be better 
than either. He recognized the cheapness of gov- 
ernment notes and their facility of production in 
times of emergency, but on the other hand thought 
that there would be danger of excessive expansion, 
which would be accompanied by lavish and cor- 
rupt expenditure. 

The associations he proposed were to be volun- 
tary, but as a bounty he would impose a tax on 
the issues of the State banks. Their establish- 
ment would give every person holding a dollar of 
their circulation an interest in the preservation of 
the government, upon whoso credit the notes were 
issued, and thus out of the public debt, though 
never of itself a i^ood, this benefit might be ex- 

At the close of the previous Congress this 
measure was, as we have seen, almost friendless. 
Representative Hooper, of Boston, almost alone 
favored it in the House. The State banks were 
almost unanimously opposed to it. Rankling 
memories of the old United States Bank were 
everywhere revived, and the proposed repression 
of the Stale issues and the substitution of notes 
issued by associations organized under authority 


ot'lhe general government were measures especially 
obnoxious to Democratic congressmen. But mean- 
while the measure had evidently gained in popu- 
larity, and a bill embodying the scheme recom- 
mended by the Secretary was promptly introduced 
in the Senate and exhaustively debated. Mr. Col- 
lamer summed up the chief objections against it. 
They were : — 

That it proposed to tax State banks out of 
existence. That it substituted for the State banks 
then doing business at least three thousand, and 
perhaps six thousand institutions, entirely inde- 
pendent of the power of visitation by the States. 
That the capital employed would not be subject to 
State taxation. That it made the government 
responsible for the ultimate redemption of the 
circulation to be issued. That it put great political 
power into the hands of the Secretary of the 
Treasury. That it hired the banking associations, 
at a yearly expense of $12,000,000 in gold, to cir- 
culate $300,000,000 of currenc}" among the people, 
who were at last responsible for its redemption. In 
short, that the people of the country would derive 
no benefit from the operations of the bill, and that 
after all the profits derived to the banks would be 
very small. 

To this Mr. Sherman replied that if $100,000,- 
000 of the circulation of the State banks were 
withdrawn, the government would reap an advan- 


tage, at any rate, of a market for $100,000,000 of 
its stocks, and that the creation of the demand for 
$100,000,000 would excite a farther demand for 
$500,000,000. That the power of the Secretary 
■would be weakened rather than strengthened by 
the operation of the proposed system, inasmuch as 
the powers conferred by the bill were more likely 
to make enemies than friends for the Secretary 
who exercised them. 

The bill passed both houses. In the Senate the 
vote stood 23 for, and 21 against it; in the House 
78 for, and 64 against it. One Democratic senator 
— Nesmith of Oregon — voted for the bill, and 
seven Republican senators voted against it. In 
the House two Democrats voted for it, and twenty- 
five Republicans against it. It became a law 
February 25, 18G3." 

The act provided for an additional bureau in the 
Treasury Department charged with the execution 
of the law, the chief officer of which was to be 
denominated "The Comptroller of the Currency." 

The principal features of the bill relating to the 
issue of notes were these : — 

Thirty per cent of the capital stock was to be 
paid in before the bunk could begin business. As 
a preliminary to the beginning of business an asso- 
ciation was required to transfer and deliver to the 
United States Treasurer interest-bearing bonds of 
the United States, in amount not less than one- 


third of the capital stock paid in, whereupon it 
was entitled to receive from the Comptroller circu- 
lating notes of various denominations in blank, 
but registered and countersigned at the depart- 
ment, equal to ninety per cent of the current 
value of the bonds, but not exceeding their par 

The whole amount of circulation authorized was 
$300,000,000, of which one half was to be appor- 
tioned according to population, the other half 
according to the then existing banking capital, 
resources, and business of the States, Territories, 
. and District of Columbia. 
Cl^ To reimburse the expense of the government in 
/ preparing the notes, a tax of two per cent per 
annum was imposed upon the amount of the circu- 
lation of the associations in lieu of all other taxes 
upon the notes and the security bonds. 

^The notes were made receivable in payment of 
all dues to the United States except duties on im- 
ports, and payable in satisfaction of all demands 
against the United States, except interest on the 
public debt. 

Every association was required to have on hand 
at all times, in lawful money of the United States, 
a sum equal to twenty-live per cent of the aggre- 
gate of its outstanding circulation and deposits. 

No association was to pay out or put in circula- 
tion the notes of any bank or banking association, 


which should not bo receivable at the time at par, 
on deposit or in payment of debts due the asso- 
tion paving out or circulating them. Nor could it 
circulate the notes of any association which did 
not at that time redeem its notes in the lawful 
money of the United States. Provision was also 
made for the conversion of State banks into these 

Secretary Chase, in his next annual report, Dec. 
10, 1863, ascribed salutary effects to the operation 
of the act. Up to that time 134 banks had been 
organized, chiefly in the west, with an aggregate 
capital of $16,000,000. Some defects in the act 
had naturally been developed in the year's experi- 
ence of its practical working, to correct which he 
recommended several amendments. 

The debate upon the amendatory act developed 
all that could be urged against the system, to 
wit : — 

1st. That it inflated the currency and raised 

2d. That it provided for an irredeemable cur- 

3d. That it relieved the capital of the associa- 
tions from State taxations. 

In answer to the first allegation, that prices of 
commodities had largely increased, no denial could 
be made, but it was alleged that the increase was 
no more due to the expansion of bank circulation 


than to the issue of United States notes, and that 
the evils at best were but temporary and would 
disappear with success in the field. 

Nor could the second allegation be denied, but 
it was alleged that after the suspension of the 
banks in 1861 a coin circulation was not believed 
possible, and that the government had to choose 
between the two paper currencies offered, one by 
the State banks also irredeemable in coin, which 
currency could be expanded and depreciated with- 
out restriction, the profits accruing to the banks 
issuing it; or one furnished by the government 
under its own direction and control, secured by 
the pledged faith of the United States, the profits 
of which should be for the benefit of the whole 
people of the country. 

In reply to the third objection it was urged that, 
under the decisions of the Supreme Court, banks 
chartered by the United States could not be taxed 
by the State authorities, even without a special 
exemption therefrom by law, and the same was 
true as to the bonds and stocks of the government, 
and that for the benefit which might arise from the 
circulation the banks paid the government a gene- 
rous tax. 

The amendatory tax passed the Senate, only two 
Republicans voting against it, and none of the 
Democrats voting for it. In the House no Repub- 
lican voted against it, and no Democrat voted for 


it. The bill became a law June 3, 1864. The 
amendments affecting the circulation were mainly 
these : — 

1st. There was to be no restriction as to the 
distribution of the circulation, the aa-orerrate 
amount, however, to remain at $300,000,000. 

2d. The tax on circulation was reduced to one- 
half of one per centum semi-annually, and a tax 
was imposed upon the deposits, and upon the capi- 
tal stock in excess of the amount represented by 
bonds pledged to secure the circulating notes. 

3d. Any association wishing to close its busi- 
ness could deliver to the Treasurer of the United 
States lawful money to the amount of its out- 
standing notes, and be entitled to receive there- 
for the return of the bonds pledged for their 

By subsequent legislation, changes have been 
made, so that the banks can, at the present time, 
receive of circulating notes but ninety per centum 
of the face value of the pledged bonds, and they 
are not otherwise restricted as to the limit or dis- 
tribution of their circulation. 

In lieu of any reserve for circulation, every bank 
is now required to keep in the Treasury of the 
United States five per centum of the amount of 
its circulation ; and the Treasurer is required to 
redeem therewith any notes of the hank presented 
for that purpose. If the bank issuing the redeemed 


notes is still doing business, now notes are issued 
to it in lieu of those redeemed and destroyed, and 
the five per cent fund must be reimbursed to that 

Every bank can also, at its discretion, decrease 
the amount of its circulation by depositing with 
the Treasurer of the United States legal-tender 
notes to the amount of the reduction contemplated. 
The Treasurer, upon receipt of the deposit, returns 
to the bank a corresponding amount of its security 
bonds, and redeems the notes of the bank to the 
extent of the deposit when they come into his 
possession. No limit is fixed to the time during 
which the notes of banks which have closed busi- 
ness must be presented for redemption, and, as a 
result, many notes will be worn out or otherwise 
destroyed, and will never be presented for redemp- 
tion. No provision as to the disposition of the 
fund provided for the redemption of such de- 
stroyed notes has been made. 

The fund deposited with the Treasurer for the 
redemption of notes of banks which have failed, 
gone into liquidation, or are reducing circula- 
tion, reaches at times nearly $50,000,000. This 
amount, whatever it may be, lies idle in the 
Treasury vaults. 

Of this system of circulation much good can be 
said. No holder of a national bank-note has ever 
lost a cent through the failure of the bank issuing 


it ; nor has he been subjected to a vexatious dis- 
count in passing it. Everywhere throughout the 
country the note passes at par, and no scrutiny is 
required to ascertain the place of its issue. Coun- 
terfeit issues are almost unknown, — so rare, indeed, 
that no one takes any precaution to guard against 
them. There is no monopoly in the system. Ten : 
persons in any city having less than twenty-thou- I 
sand inhabitants can organize a bank by contribut- 
ing $5,000 each, one-half down, the remainder in 
easy instalments., and have whatever profits they 
can find in issuing circulating notes. 

It is true that at first the national-bank notes, 
being made redeemable in lawful money of the 
United States, did not circulate at par in coin, but 
that time is happily passed, and hereafter no bank 
should be permitted, under any circumstances, to 
refuse payment of its notes in specie at par. 

Opposition to the system has almost entirely 
disappeared throughout the land. From no source 
come any complaints of its operations, and in the 
United States Senate this winter no reply was 
elicited, no denial made, when one of its ablest 
members, a Democrat from Kentucky, remarked, 
"The national banks are out of politics. There is 
nobody making war upon them, nor arc they, as 
such, interfering in political affairs. "We need their 
circulation for a growing country, and therefore it 
will be a benefit for us all to maintain it." 


The rapid payment of the public debt, however, 
if continued, will in a few years retire the bonds, 
by the deposit of which, under existing laws, the 
banks will obtain circulation, and the whole ques- 
tion of a paper circulation for the country will 
again be opened. 



At the close of the civil war the State banks 
had a circulation of $143,000,000, but a law im- 
posing a tax of ten per cent upon the amount of 
the notes of such banks paid out by any banking 
association took effect on the first day of July, 
1865, and there could be but one result, — the 
issues of State banks must go. The national 
banks at that time had issued but $146,000,000 
of the $300,000,000 authorized. The government 
had outstanding $433,000,000 of United States 
notes, $104,000,000 of compound-interest notes, 
$43,000,000 of the one and two year notes, and 
$25,000,000 of fractional notes. The total amount 
of paper currency outstanding was $983,000,000, 
having a coin value of $692,000,000, the coin 
value of the paper dollar being seventy-one cents. 

Fiscal Year 1866. 
Secretary McCulloch, in his annual report for 
1865, expressed the opinion that the issue of legal 
tender notes, being a war measure, a temporary 



expedient adopted in a great emergency ; they 
ouo-ht not to remain in use longer than was neces- 
sary to enable the people to return to a gold 
standard, and that the work of retiring the notes 
which had been issued should be commenced with- 
out delay and carefully and persistently continued 
until all were retired. The House of Representa- 
tives on December 18, 1865, under a suspension 
of the rules, by a vote of one hundred and forty- 
four yeas to six nays, resolved : — 

" That this House cordially concurs in the views 
of the Secretary in relation to the necessity of a 
contraction of the currency, with a view to as 
early a resumption of specie payment as the busi- 
ness interests of the country will permit, and we 
hereby pledge co-operative action to this end as 
speedily as possible." 

To carry out this policy, Congress, by an act 
approved April 12, 1866, directed: "That of 
United States notes not more than $10,000,000 
may be retired and cancelled within six months 
from the passage of this act, and thereafter not 
more than $4,000,000 in any one month." 

On the date of the approval of this act there 
were outstanding of United States notes $422,- 
000,000. At the close of the fiscal year, June 
30, 1866, the circulation of State banks had de- 
creased $141,000,000, that of United States notes 
$33,000,000, the amount of compound-interest 


notes $143,000,000, and that of the one and two 
year notes $40,000,000, while the circulation of 
the national-bank notes had increased but $135,- 

It may be alleged that the interest-bearing notes 
had passed entirely out of circulation. In one 
sense this allegation is true, — they were no longer 
used in making exchanges ; but being a legal 
tender for their face value they furnished, and 
were used as, a lawful reserve for the national 
banks, taking the place of United States notes to 
the extent that they were thus used, and swelling 
the aggregate circulation by a corresponding 
amount. Upon maturity, large amounts of them 
came back to the Treasury from the banks, with 
the seals of their original packages unbroken. 
Notwithstanding the great reduction in the paper 
circulation, the coin value of one dollar in paper 
was live cents less at the end of the year than at 
the beginning, — a poor encouragement for any 
plan of resumption by contracting the currency. 

It should l)e remembered, however, that on 
June 30, 18G5, a year before, a large army had 
just been disbanded and paid off, calling into use 
a large amount of circulating notes throughout the 
country ; large sales of public stores and property 
were being made for cash, and these transactions 
caused a demand for circulation which did not 
exist in 1866. The total amount of paper circula- 


tion Jane 30, 1866, was $892,000,000, a reduc- 
tion within the year of $9,500,000. The coin 
value of the circulation was, however, but $589,- 
000,000, a reduction of $103,000,000 of coin 
valuation, the coin valuation of paper being sixty- 
six cents. 

Fiscal Year 1867. 

The Secretary continued his policy of retiring 
United States notes, as provided by law. The 
compound-interest notes were also being rapidly 
funded into five-twenty bonds, but the national 
banks meanwhile were increasing their issues. By 
the withdrawal of the interest-bearing notes the 
banks had to keep their reserve in non-productive 
money, and they made an earnest appeal to Con- 
gress for relief. This relief was partly granted. 
Congress, by an act approved March 2, 1867, 
authorized a temporary loan of $50,000,000 in the 
form of certificates, bearing three per cent interest 
per annum ; the proceeds to be used in the redemp- 
tion of the compound-interest notes ; the certifi- 
cates issued to be used as a lawful reserve for the 
banks. The}^ were thus used, and any reduction 
during that year in the amount of United States 
notes was more than offset by the issue of this 
loan. Notwithstanding the issue of the three per 
cent certificates, the aggregate amount outstanding 
of interest-bearing notes rapidly decreased, and 


there was no means by which the aggregate circu- 
lation could be increased, the circulation of the 
banks having already reached the limit authorized 
by law. The amount of outstanding paper circu- 
lation June 30, 1867, was $827,000,000, having a 
coin value of $587,000,000, a decrease during the 
year in face value of $65,000,000, but a decrease 
in coin value of only $2,-000,000. The paper 
dollar now had a coin value of seventy-one cents, 
an increase duriug the year of five cents. 

Fiscal Year 1868. 
Upon the assembling of Congress in December, 
1867, there was a threatened stringency in the 
money market. A considerable decline in the 
prices of commodities had already taken place, 
the country was on the road to resumption at last, 
but the wrecks of fortunes threatened to strew its 
pathway. Congress became alarmed and deter- 
mined to postpone the evils it could not avoid. 
On February 4, 1868, the authority to further 
retire United States notes was suspended, leaving 
outstanding $356,000,000. On June 30, 1868, 
there remained outstanding of compound-interest 
notes only $28,000,000, but the issues of three 
per cent certificates had increased to $50,000,000. 
Including the amount of these certificates, the total 
paper circulation at that date was $770,000,000, 
having a coin value of $540,000,000, a reduction 


during the year of $57,000,000 in face value and 
of $47,000,000 in coin value. The paper dollar 
was now worth seventy cents in coin, one cent less 
than it was a year before, notwithstanding the 
large reduction in the aggregate amount of circu- 

Fiscal Year 1869. 

On July 25, 18G8, Congress, in order to favor 
the banks and to avoid a possible stringency in 
the money market, authorized an additional issue 
of $25,000,000 of the three per cent certificates. 
A new question now arose and had to be met. In 
several of the acts authorizing the issue of United 
States bonds the character of the currency in 
which they were to be paid at maturity was left in 
doubt, and a determined effort was made by a 
large class of people, especially by those who had 
not been friendly to the purposes of the war, to 
secure the payment of these loans in the notes for 
which they were issued. Congress, however, by 
an act approved March 18, I860, set these ques- 
tions at rest by declaring that the faith of the 
United States was solemnly pledged to the pay- 
ment, in coin or its equivalent, of all the obliga- 
tions of the United States not bearing interest, 
known as United States notes, and all the interest- 
bearing obligation of the United States, except 
in cases where the law authorizing the issue of any 


such obligations had expressly provided that the 
same might be paid in lawful money or other cur- 
rency than gold or silver. And it also pledged 
the faith of the United States to provide at the 
earliest practicable period for the redemption of 
United States notes in coin. This act had the 
effect of strengthening the public credit and of 
increasing the value of United States notes. In- 
cluding the amount of these three per cent certifi- 
cates, the afnrreuatc amount of outstanding circula- 
tion at the close of the fiscal year ending June 30, 
1869, was $75(3,000,000, having a coin value of 
$552,000,000, a decrease of $14,000,000 in face 
value and an increase of $12,000,000 in coin 
value. The paper dollar was now worth in coin 
seventy-three cents, a gain during the year of 
three cents. 

Fiscal Year 1870. 
On June 30, 1870, the aggregate of paper cir- 
culation was $745,000,000, having a coin value 
of $(133,000,000, a decrease during the year of 
$11,000,000 in its face value, but an increase of 
$81,000,000 in its coin value. A dollar in paper 
was now worth eighty-five cents, a gain in value 
during the year of twelve cents. 

Fiscal Year 1871. 
On the 12th of July, 1870, an act was approved 


authorizing an additional issue of $54,000,000 
national bank circulation, an equivalent amount of 
three per cent certificates to be redeemed ; and on 
June 30, 1871, the banks had increased their 
circulation to $418,000,000. The aggregate cir- 
culation at this date was $748,000,000, with a 
coin value of $(565,000,000, a paper dollar being 
now worth eighty-nine cents, an increase within the 
year of four cents. 

Fiscal Year 1872. 

Another question now arose to agitate the coun- 
try. The acts of Congress of February 25 and 
June 11, 1862, and March 3, 1863, had together 
authorized the issue of $400,000,000 of United 
States notes in addition to $50,000,000 of such 
notes reserved for the purpose of securing prompt 
payment of temporary loan deposits, and the act 
of June 30, 1864, contained these words: "Nor 
shall the total amount of United States notes, 
issued or to be issued, ever exceed $400,000,000, 
and such additional sum, not exceeding $50,000,- 
000, as may be temporarily required for the re- 
demption of temporary loans." 

The temporary loans referred to having been 
redeemed, the maximum amount of United States 
notes was evidently fixed by the last-named act at 

The act of April 12, 1866, provided, as we have 


seen, that a certain amount of United States notes 
might be retired and cancelled. The act of Feb. 
4, 1868, provided that the authority to make any 
reduction of the currency by retiring and cancel- 
ling United States notes should thereafter be sus- 
pended. Between the dates of these two acts the 
amount outstanding of United States notes was 
reduced from $422,000,000 to $356,000,000, and 
as the notes withdrawn had been retired and can- 
celled, as provided by law, and reduced to ashes, 
as provided by Treasury regulations, they were 
generally supposed to have passed beyond the 
power of resurrection ; but some financial genius 
discovered that the maximum limit of $400,000,000 
to which the notes could be issued remained un- 
touched, and that the Secretary of the Treasury 
had consequently a reserve of $44,000,000 of 
United States notes which he could issue and 
retina at his discretion. By virtue of this newly 
discovered discretionary power Secretary Bout- 
well, in October, 1871, to relieve a stringency in 
Wall Street, issued of this reserve $1,500,000. 

At the end of the year, June 30, 1872, the 
amount of paper circulation was $738,000,000, 
the banks having increased their issues about 
$20,000,000. The coin value of this circulation 
was now $646,000,000, a paper dollar being worth 
eighty-seveu cents and a half, a decrease in value 
during the year of one cent and a half, mainly 


brought about by the alarm which arose from the 
action of the Secretary in reissuing the notes. 

Fiscal Year 1873. 

The previous year ended with seeming prosper- 
ity throughout the country. In all parts labor 
met with good demand and remunerative compen- 
sation, and manufacturing enterprises were espe- 
cially prosperous. The Secretary, at his discre- 
tion, had from time to time caused additional issues 
to be made from the alleged reserve, although his 
authority to do so was doubted by many. Even 
if the right to re-issue these notes existed, the 
necessity of exercising what at best was a doubt- 
ful and dangerous prerogative may be questioned. 
The receipts of the government were largely in 
excess of i he expenditures, and bonds were being 
purchased with the surplus at a considerable pre- 
mium. The public Treasury, at the same time, 
was strong, holding of cash more than $70,000,000 
in excess of all matured demands outstanding. 

The Secretary, in his annual report to Congress, 
made no reference to this important subject. The 
increased amount of the notes, however, appeared 
in the monthly debt statement and other official 
publications, and neither Congress nor the coun- 
try was ignorant of their issue. Of this reserve 
there was issued in all $4,637,256, but the outcry 
against the policy was so strong that $3,481,541 


was retired. Secretary Richardson, who suc- 
ceeded Secretary Boutwell in March, 1873, imme- 
diately retired the remainder of the reserve issue, 
and at the close of the year, June 30, 1873, the 
amount outstanding was again reduced to $356,- 
000,000. Meanwhile the banks had increased 
their issues to $347,000,000, and the amount of 
fractional currency which had been gradually in- 
creasing now reached more than $44,000,000. 

The entire circulation June 30, 1873, was $750,- 
000,000, coin value $048,000,000, the value of 
the paper dollar being eighty-six and a half cents, 
a still further depreciation of one cent. 

Fiscal Year 1874. 
Another year of intense activity in business had 
passed, the credit circulation of the country had 
been considerably increased, while the public 
debt had largely diminished, and there seemed 
to be no reason why this prosperous condition of 
affairs should not continue indefinitely. But sud- 
denly in September, 1873, when the country was 
revelling in apparent prosperity, there came a 
crash. The country was roused from pleasant 
dreams to unpleasant realities. It was now seen 
that a million men in arms destroyed wealth 
instead of creating it ; that goods manufactured 
beyond need were a drug in the market ; that rail- 
roads built where there were neither passengers 


nor freight to carry could not pay dividends ; that 
the values of commodities were not governed by 
the imagination of the owners ; that men who 
habitually spent more than they earned would 
eventually become paupers, and generally that 
paying for the music did not give the ecstatic 
delight produced by the whirl of the dance. 

The first indication of the approaching cyclone 
was the failure of a well-known banking house. 
The storm did not abate until all the industries of 
the country were wrecked or damaged. Failures 
in business were numerous on every hand, and the 
man in active business who could pay promptly 
the demands upon him was looked upon as a skin- 
flint who had been devoid of enterprise and public 
spirit. Doubt and suspicion succeeded to hope 
and confidence. Men no longer dared to trust 
each other, and each one grasped all the money he 
could lay his hands on and kept it in his personal 
possession. The banks no longer received their 
customary deposits and consequently could with 
difficulty meet their obligations. With collateral 
of undoubted worth they could induce holders of 
money to part with their treasure only at exorbi- 
tant rates, if at all. The savings banks, although 
generally solvent, having extended their loans to 
the utmost limit to enable them to pay large divi- 
dends, were especially embarrassed to meet the 
demands of depositors, and their officers were 


forced into the streets to borrow money at ruin- 
ous rates in order to avoid the mortification of 
temporarily closing their doors. 

In the vaults of the Treasury lay $50,000,000 
of gold coin which could lawfully have been paid 
out in exchange for public obligations without 
embarrassing the operations of the government ; 
but as specie could not be employed to pay private 
debts without a sacrifice at once of about twelve 
per cent, — the amount of its premium in paper, — 
it was not wanted. Nowhere else did there appear 
to be any accumulation of money, nor could the 
banks expand their issues, their maximum limit 
having already been reached. All eyes were 
therefore turned to the $44,000,000 note reserve 
lying in the Treasury, a portion of which had done 
duty in the previous year in an exigency far less 
pressing than this, and urgent demand arose for 
its issue. The Secretary yielded to this demand, 
and in exchange for public securities paid out 
$25,000,000 of it, thus affording a temporary 
relief to the embarrassed banks. For this action 
he was censured as well as praised. In his favor 
it can be said that for more than a year Congress 
had known that the Secretary claimed the right to 
issue and withdraw any portion of this reserve as 
circumstances might in his judgment require, and 
no steps had been taken to dispossess him of this 
extraordinary and dangerous power. Congress 


had also by its inaction needlessly left the country 
with only a local currency with which to effect 
exchanges. Gold, the currency of the world, was 
still only a commodity and unavailable for circula- 
tion. From the conditions indicated, only evils 
could flow in such a crisis, and the Secretary 
endeavored to make the evils as bearable as pos- 
sible. Had the country been conducting its ex- 
changes on a specie basis, no such crisis could have 
arisen. The gold of the Treasury would have met 
immediate wants, and for any additional needed 
amount European gold would have poured into 
Wall Street as soon as electricity could have 
invited it and steam brought it to our shores. 
Only by having the whole world for a market can 
a stringency of money be avoided in a panic like 
that of 1873. 

Congress assembled in December following. 
The scarcity of money still continued to be se- 
verely felt throughout the country. The Secre- 
tary had from his reserve given relief to the banks, 
and men then asked "If banks can thus obtain 
relief, why not make the reserve large enough so 
that from it the government can relieve everybody 
and make money plentiful again?" The inquiry 
was pertinent and suggestive. The Senate crys- 
tallized the idea into a bill of two sections. The 
first section fixed the maximum limit of United 
States notes at $400,000,000 ; the second author- 
ized $46,000,000 additional bank issues, and re- 


quired each bank to retain as a part of its lawful 
reserve one-fourth part of the coin received by it 
as interest on the United States bonds deposited 
with the Treasurer of the United States to secure 
its circulation and deposits. The bill, however, 
prohibited an}' bank from keeping more than one- 
fourth part of its reserve in the banks of the 
reserve cities where the entire amount had usually 
been kept at a low rate of interest. Whether 
inflation or contraction would result from this 
measure nobody could tell. The friends of re- 
sumption opposed it, but were unable to defeat its 
passage. The President vetoed it, however, as 
an inflation measure, giving such cogent reasons 
for his action that even the promoters of the 
scheme had no reply to make. The influence of 
the action of the President had a gratifying effect 
throughout the country and called a halt to all 
inflation purposes. 

On June 20, 1874, an act was approved fixing 
the issue of United States notes at $382,000,000, 
the amount then outstanding. The act also re- 
quired every national bank to keep with the Trea- 
surer of the United States five per cent of its 
circulation with which to redeem its notes, and 
required no other reserve for that purpose. The 
act also authorized any bank to reduce its circula- 
tion by depositing with the Treasurer for the 
redemption of its notes an amount of United States 
notes equal to the reduction proposed. 


On June 30, 1874, the fiscal year ended with 
$781,000,000 of circulation outstanding, $46,000,- 
000 being fractional notes; coin value $711,000,- 
000 ; coin value of the paper dollar, ninety-one 
rents, a net gain during the year of four and a 
half cents, notwithstanding the increase in circu- 
lation of $31,000,000. 

Fiscal Year 1875. 
The distress following the panic of 1873 was 
not easily or quickly relieved, and Congress as- 
sembled in December, 1874, with the country 
looking to it for corrective legislation. The firm- 
ness of the President, as evinced in his veto mea- 
sure of the preceding session, precluded any hope 
of further inflation of the currency and strength- 
ened the hands of those who favored a return to 
specie payments. Early in the session a measure 
was reported to the Senate, commanding the sup- 
port of the Republican side, and it was pressed 
through both houses as a purely partisan measure, 
no Democrat voting for it. It became a law 
Jan. 14, 1875, but its immediate effects were not 
encouraging. By the close of the fiscal year, June 
30, 1875, the banks had increased their issues to 
$354,000,000 and the amount of United States 
notes was reduced to $375,000,000 ; total circula- 
tion $773,000,000, coin value $674,000,000, value 
of the paper dollar eighty-seven cents, a loss of 
four cents, notwithstanding the resumption act. 

contraction. 143 

Fiscal Year 1876. 

No further legislation affecting the issue of a 
credit circulation was adopted during this year. 
The banks, somewhat to the surprise of those who 
feared they might largely expand their issues, re- 
ported a decrease in the aggregate amount. New 
banks, however, had received issues which, under 
the provisions of the resumption act, required a 
corresponding reduction in the amount of United 
States notes. Contraction, therefore, resulted in 
both forms of credit circulation. 

On June 30, 1876, the total circulation was 
$738,000,000, coin value $656,000,000, value of 
the paper dollar in coin eighty-nine cents, a gain 
of two cents, owing largely without doubt to a 
decreased circulation of $35,000,000. 

Fiscal Year 1877. 
During this year a large amount of fractional 
notes was redeemed by the issue in their place of 
fractional silver. The banks also continued to 
withdraw their circulation, and the volume of 
United States notes was considerably diminished. 
The circulation being now relieved of many re- 
straints began to adjust itself to the needs of 
business, and good effects were felt. The total 
circulation, June 30, 1877, was $698,000,000, coin 
value $662,000,000, value of paper dollar ninety- 
five cents, a gain of six cents. 

144 money ix politics. 

Fiscal Year 1878. 

By the end of this year nearly all the fractional 
notes not destroyed had been redeemed in silver, 
only $16, 000,000 remaining, of which only about 
$1,000,000 has since been redeemed. Congress 
contented itself with passing an act which was 
approved May 31, 1878, prohibiting the retire- 
ment of any more United States notes, and provid- 
ing that when any such notes should thereafter be 
redeemed they should not be cancelled, but should 
be paid out again and kept in circulation. As no 
limit had ever been placed on the amount or kind 
of fund which the Secretary could keep on hand 
the last provision was of no possible consequence, 
but it pleased the opponents of resumption and at 
the same time did no harm. At the close of this 
year, June 30, 1878, the total amount of circula- 
tion was $688,000,000, coin value $684,000,000, 
value of a dollar in coin ninety-nine and a half 
cents. Resumption took place six months later, 
as provided by law. 

To those who believe that the aggregate ex- 
change value of a circulating medium can be 
increased or diminished by the will of Congress or 
any human agency is commended the fact that 
after sixteen years of legislative effort, by which 
the face value of the circulation was reduced more 
than $300,000,000, the coin value was reduced 
less than $6,000,000. The great law of demand 



and supply fixed the amount needed and mocked 
the futile efforts of those who tried to overrule it. 
The following statement shows in tabular form 
the changes which took place in the amount and 
valuation of the paper circulation for the years 
named : — 

Statement showing the amount in millions of outstanding paper 
circulation and its value in coin, together with the value in 
coin of one dollar in paper, at the close of each fiscal year, 
from 18G5 to 1879 inclusive. 

Year ending 
June 30. 

Amount of 

Coin value of 



Coin value of 
One Dollar 
of paper. 

























































1879 Jan. 1 






The panic of September, 1873, called attention 
to the defects of our monetary system. United 
States notes were hoarded with such avidity that 
they rose in value to about ninety-three cents in 
gold or about the value of fractional silver coins 
— these coins being intentionally debased about 
seven per cent below their face value to keep them 
in circulation. President Grant noted this favor- 
able change, and in a letter to Mr. Cowdrey, of 
October 6, 1873, expressed surprise that silver 
was not already coining into the market to supply 
the deficiency in the circulating medium. On the 
27th of that month Secretary Richardson issued a 
circular letter to the several sub-treasury officers, 
directing them to pay out silver coin to public 
creditors, should they desire it, in sums not to 
exceed five dollars in any one payment. At that 
time the government held of such coin but a few 
thousand dollars, and the step taken by the Secre- 
tary, although well intended, brought nothing but 
ridicule upon the administration. The instruction? 



looking to the paying out of silver coin in this 
manner were quietly revoked by verbal orders and 
by private letters. 

Upon the assembling of Congress Senator Sher- 
man promptly introduced a measure looking to the 
resumption of specie payments in gold on January 
1, 1876, but it was amended into the inflation 
measure which was vetoed by the President, to 
which reference has been made in another chapter ; 
and no further legislation with a view to resump- 
tion was attempted during that session. But the 
action of the President fixed the policy of the Re- 
publican party. No steps backward could now be 
taken. In the next session (December, 1874,) 
efforts to secure harmonious party action in the 
future were diligently made. A congressional 
caucus took upon itself the duties of the finance 
committee of the Senate and perfected a bill which 
pleased nobody, but which was the best that could 
be framed with any prospect of securing its enact- 
ment into a law. Mr. Sherman reported the bill 
to the Senate and, alone, urged its passage. The 
party whip had done its work and the bill imme- 
diately passed, no Republican voting against it 
except Mr. Schurz. This senator insisted that 
positive provision should be made in the bill for 
the retirement of the notes after redemption, a 
provision which had been necessarily omitted to 
secure for the support of the bill Mr. Morton and 


others who had . little faith in any scheme for 
resumption at so early a period. 

In the House the bill passed without debate, and 
the President added his approval January 14, 1875. 
The act provided (1st) for the redemption of the 
fractional notes in subsidiary silver coin ; (2d) for 
an unlimited issue of national bank notes with a 
provision for the retirement of legal tender notes 
to the extent of eighty per cent of such issue of 
bank notes until the amount of United States notes 
outstanding should be reduced to $300,000,000; 
and (3d) for the redemption in coin of the legal 
tender notes, on presentation in sums of fifty 
dollars and upwards at the Sub-Treasury in New 
York, on and after January 1, 1879. To carry 
out the provisions of this act, ample authority was 
given the Secretary of the Treasury to use all sur- 
plus revenues of the government, and also to issue 
such an amount of bonds bearing five, four and a 
half, or four per cent interest, as he might deem 
proper. The immediate effect of the passage of the 
bill was a decrease in the volume of United States 
notes, as also of national bank notes. 

The fractional notes were at that time about at 
par with fractional silver coin. Silver bullion was 
therefore purchased, and the mints began the 
manufacture of fractional coins with which to re- 
deem the fractional notes as provided by law. The 
Secretary, however, had some doubts as to hi? 


authority to pay out the coin in the redemption of 
the notes, and an act was approved April 17, 1876> 
directing the exchange to be made and the notes 
to be permanently retired. 

For a time the notes were presented in amounts 
beyond the capacity of the mints to supply the 
coins for their redemption, notwithstanding the 
fact that they were operated over hours and to 
their maximum capacity. 

The amount of fractional notes outstanding was 
about $42,000,000, but long before that amount 
was redeemed their presentation for redemption 
practically ceased. A great demand for the coins 
continuing, however, Congress authorized the issue 
of an additional $10,000,000 in exchange for 
United States notes, these notes to bo held as a 
special deposit with which to redeem the fractional 
notes when they should be presented for redemp- 
tion. Straggling fractional notes subsequently 
reached the Treasury, to some extent, but Con- 
gress, convinced that a large amount of them 
would never be presented for redemption, author- 
ized the United States notes held to be paid out 
for otherjpu rposes. Ab out- -$!£,< >< >( U h h ) of t'nie- 
"Honal notes still remain outstanding, to that ex- 
tent constituting a clear gain to the government. 

To reimburse the Treasury in part for the money 
paid out in the purchase of silver bullion, and to 
make £ood the deficit occasioned by the retirement 


of United States notes, Secretary Bristow sold of 
United States five per cent bonds $17,594,150. 
The balance needed for these purposes was made 
up from the surplus revenues. Neither Mr. Bris- 
tow nor his successor, Mr. Morrill, took any steps 
toward accumulating a fund with which to redeem 
United States notes on Jan. 1, 1879, as provided 
in the Resumption Act. In March, 1877, Mr. 
Sherman succeeded Mr. Morrill as Secretary of 
the Treasury. Of the action taken by this officer 
the writer has heretofore published the follow- 

"On April 6, 1877, Secretary Sherman addressed 
a letter to a prominent banking firm, in which he 
announced his purpose to sell bonds to secure coin 
with which to meet the redemptions required, pro- 
vided the surplus revenues proved insufficient to 
enable him to redeem the notes as required by law. 
lie also announced that whenever the. sales of four 
and a half per cent bonds (funded loan of 1891) 
then being made for refunding purposes reached 
$200,000,000, he proposed to withdraw from the 
market the remaining $100,000,000 authorized to 
be issued for refunding purposes, and to issue 
thereafter only four per cents (funded loan of 
1907). Before the 1st of July ensuing the limit 
of $200,000,000 was reached, and of the amount 
sold $15,000,000 were applied to resumption pur- 
poses. On the 9th of June a contract was made 


by the Secretary for the sale of said four per cent 
bonds, under which also $25,000,000 were reserved 
for resumption purposes. 

" This amount of $40,000,000 was received in 
gold coin before October, 1877. In that month 
Congress convened in special session. Among its 
first measures was the introduction on one day of 
thirteen bills for the repeal of the Resumption 
Act. One of these bills passed the House on the 
23d of the following month. This extraordinary 
change of sentiment had been brought about by 
various causes. The depression in business, which 
had existed since 1873, was attributed by many to 
the effects of the Resumption Act. 

" During the winter of 1877-78 no further action 
was taken by the executive officers of the govern- 
ment concerning resumption. On April 1, 1878, 
in an interview with the House Committee on 
Banking and Currency, Secretary Sherman an- 
nounced his purpose to increase the coin reserve 
by the sale of bonds to the amount of $50,000,- 
000. With this additional amount the total coin 
reserve in the Treasury applicable to resumption 
would be about forty per cent of the amount 
of legal tender notes outstanding ; and with this 
reserve the Secretary thought it would be practi- 
cable and prudent to commence the redemption of 
the notes on the appointed day as required by law. 


Four days later negotiations were begun in New 
York between the Treasury Department and the 
banks for the sale of four and a half per cent bonds 
(funded loan of 1891) for this purpose; and after 
a little delay a sale was effected to the amount of 
$50,000,000 at a premium of one and a half per 
cent. The ability of the contracting parties to 
place the coin in the Treasury as proposed could 
not be doubted, and from that date there was but 
little fear of the success of resumption. Further 
efforts to repeal the law were abandoned, and the 
business of the country began to adjust itself to 
the basis of the approaching resumption of specie 
payments. The payments for the $50,000,000 of 
bonds were promptly met, and in addition thereto 
the Treasury reserved of the proceeds of sales of 
four per cent bonds (funded loan of 1907), then 
being made, an additional amount of $5,500,000 
in gold coin necessary for the- extraordinary pay- 
ment of that amount on account of the so-called 
"Halifax award." 

" In addition to providing the necessary coin re- 
serve, every step was taken by the Treasury which 
the law would permit to maintain the reserve in- 
tact. On the 1st of January, 1879, about $25,- 
000,000 of interest on the public debt, payable in 
coin, was to fall due ; and, as the law required the 
redemption-reserve fund to be kept in New York, 
Secretary Sherman determined that the payment 


of coin on account of interest should thereafter he 
made only in that city, but gave permission to 
other Sub-Treasury officers to pay interest to all 
persons who might be willing to accept legal tender 
notes. Arrangements were also made with the 
several assay offices by which gold could be pur- 
chased for legal tender notes, whereby the Treasury 
was replenished to that extent for the probable 
coin payments in redemption of notes. Steps were 
also taken by which the government, to a certain 
extent and for certain purposes, became a member 
of the Clearing-House Association of New York. 
Under this arrangement, in consideration of the 
jjovernment's receiving and collecting its checks 
through the Clearing-House, that body agreed to 
receive all balances due it upon such checks at the 
counter of the Sub-Treasury in that city, and to 
accept legal tender notes in payment of govern- 
ment checks and drafts of all descriptions. As 
all interest-checks, as well as checks issued in pay- 
ment of called bonds, were, by law, payable in 
coin, this agreement on the part of the Clearing- 
House, through which institution nearly all of the 
checks passed, relieved the Treasury almost en- 
tirely from the necessity of making actual coin 
payments after resumption took place. This 
necessity being removed, there was no longer any 
reason for requiring duties on imports to be paid 
in coin as provided by law ; and the Secretary of 


the Treasury, in his annual report of December 
2, 1878, announced to Congress his purpose to 
receive notes in payment of such duties. Congress 
adjourned for the holidays without expressing any 
opinion as to the legality or advisability of the ac- 
tion proposed, whereupon instructions were given 
to the government officers to receive such notes in 
payment of duties, the notes to be redeemed in coin 
at New York on government account whenever it 
became necessary. Instructions were also given 
to the Treasurer and other officers of the Depart- 
ment to close up in their accounts all distinctions 
between coin and currency, and after January 1, 
1879, to recognize, in the accounts as well as in 
the money, that the government had resumed spe- 
cie payments, and that the several kinds of money 
in circulation were of equal value. 

" The preparations were so complete that on Jan. 
1, 1879, the date when resumption took effect, the 
Treasurer held, of gold coin and bullion, $135,382,- 
639.42 ; of standard silver dollars coined under 
the act of February 28, 1878, $16,704,829 ; and of 
fractional silver coin, including silver bullion, 
$15,471,265.27. The amount of coin held by the 
Treasury as available for resumption purposes on 
that day, after deducting all matured coin liabili- 
ties, was about $135,000,000, or about forty per 
cent of the amount of notes to be redeemed. The 
thoroughness of preparation for resumption had 


quieted all apprehensions as to the success of the 
policy, and on the first day of resumption only 
straffsrlins: demands for coin were made, the amount 
aggregating less than the amount of notes pre- 
ferred by the holders of coin obligations. And 
during the entire year there were redeemed of the 
legal tender notes only the amount of $11,456,536 ; 
while for the same period there were paid out of 
such notes on account of coin obligations more 
than $250,000,000. There were also received of 
such notes in payment of customs dues in the year 
ending Dec. 31, 1879, $109,467,456. 

"Thus, after much labor and sacrifice, the 
country was lifted out of the financial bog of de- 
preciated paper currency, and with the resumption 
thus happily secured came a revival of business, 
an extraordinary demand for labor of all kinds, 
and a confirmation of that confidence which was 
so necessary for all business enterprises, and which 
had grown step by step with every movement 
made toward a specie basis." 

No material draft has yet been made upon the 
resumption fund thus accumulated, nor has the 
precise amount of that fund yet been fixed by 
positive law. The whole amount is carried as a 
part of the ordinary Treasury balance, subject to 
the warrant of the Secretary at any time and 
perhaps for any purpose. The Secretary, in his 
annual report for 1879, called the attention of 


Congress to the matter, and recommended that to 
avoid all uncertainty this fund be specifically de- 
fined and set apart for the redemption of United 
States notes, and that the notes redeemed be re- 
issued only in exchange for or purchase of coin or 

Congress, by an act approved July 12, 1882, 
provided that the issue of gold certificates should 
be suspended whenever the amount of gold re- 
served in the Treasury for the redemption of 
"United States notes should fall below $100,000,- 
000, thus indirectly recognizing that amount as 
constituting the reserve fund. The Secretary, 
however, has not been prohibited from paying out 
the fund, and the whole subject is left in that 
vexatious state of uncertainty which seems to 
result from every effort of Congress to provide a 
circulating medium. 



The act of Congress authorizing the issue of 
legal tender notes was a partisan measure, no 
Democrat voting for it. The act providing for the 
redemption of the notes in coin was framed in 
a Republican caucus, and curried through both 
Houses by force of party discipline. The courts 
of fifteen of the States have affirmed, from time to 
time, the constitutional power of Congress to issue 
such notes, the judges dividing in their opinion on 
the subject according to their political affinities; 
and the court of only one State has denied to Con- 
gress this power, — the Court of Appeals of the 
State of Kentucky. In this court the opinion was 
unanimous, but the judges were not of opposing 
politics. In the Supreme Court of the United 
States the justices have divided upon the subject 
whenever it has been brought before them, accord- 
ing to party prejudice. The action of this court 
on the legal tender question constitutes one of the 
most remarkable chapters in the history of that 
tribunal. The first decision pertaining thereto 



arose in the now celebrated case of Hepburn v. 
Griswold. The facts in this case are briefly as 
follows : — 

A certain Mrs. Hepburn of Kentucky, on the 
20th of June, 1860, made a promissory note to 
one Henry Griswold, by the terms of which she 
was to pay to the order of said Griswold $11,250, 
on the 20th of February, 1862. At the time of the 
making and maturity of the note there was not in 
the United States any legal tender money except 
gold and silver coin. The note, however, was not 
paid at maturity, and interest therefore accumu- 
lated upon it. On the 25th day of February, 
1862, Congress passed the act authorizing the issue 
of United States notes, and making them a legal 
tender in the payment of private debts. In March, 
1864, the Hepburn note not having been paid, suit 
was brought upon it, and the maker tendered in 
payment $12,770 in United States notes, that being 
the undisputed amount of note and interest. This 
tender was refused on the ground that it changed 
the terms of the contract, coin being the only legal 
tender money when the note was made. The 
Chancellor of the Court, however, declared the 
tender good, and adjudicated the claim to be set- 
tled accordingly. The payee, however, was not 
satisfied and appealed the matter to the Court of 
Errors, where the Chancellor's judgment was re- 
versed. The maker of the note was now dissatis- 


fied, and she carried the case to the Supreme Court 
of the United States. In that court the case was 
first argued during the December term, 1867, and 
it was elaborately reargued in the December term, 
18G8, especially with reference to the constitutional 
power of Congress to authorize the issue of such 
legal tender notes. The case was withheld for 
decision until the December term, 1869, when, by 
a majority of the court, the act was declared to be 
unconstitutional, so far as it made the notes a legal 
tender for debts existing prior to the date of the 
authorizing act of Feb. 25, 1862. "When this 
decision was made the court consisted of eight 
justices, there being one vacancy. The five jus- 
tices concurring in the opinion were Chief Justice 
Chase, and Associate Justices Nelson, Clifford, 
Field, and Greer. Justice Miller read the dissent- 
ing opinion, in which Justices Swayne and Davis 
concurred. The court divided in accordance with 
the political sympathies of the justices composing 
it. It may be alleged that the Chief Justice was 
known as a prominent member of the Republican 
party, but it will be remembered that for some 
time his sympathies with that party had somewhat 
abated, and while the ease in question was pending 
before the court, he had been a prominent candi- 
date for presidential honors at the hands of the 
Democratic party. 

The judgment of the court was generally ap- 


proved, but there was a considerable feeling that 
in some way the " greenbacks " had helped the 
country through the war, and that a like necessity 
for help might again arise, and for the country to 
deprive itself of any power likely to be needed in 
such an emergency would be political suicide. 
Hence arose a demand that the opinion of the court 
should be reversed. The case decided could not, 
however, under a rule of the court, be reargued, 
except upon the request of one of the judges who 
had joined in affirming the decision, and none of 
them asked to have the case reopened. 

Mr. Justice Greer, however, resigned, — his resig- 
nation to take effect Feb. 1, 1870 ; and Mr. Strong 
took his place as justice on the 14th of March fol- 
lowing. Mr. Bradley took his seat as an additional 
justice ten days later. It has been alleged, and 
never denied, that one or both of these gentlemen 
had formerly been employed as counsel for the 
Camden and Amboy Railroad, and, as such counsel, 
had given opinions affirming the legal tender act to 
be constitutional ; and also that both held consider- 
able stock of that corporation. It was known, too, 
that, subsequent to the decision in the Hepburn 
case, the company, in paying interest on its obliga- 
tions contracted previous to 18^2, had, in accord- 
ance with the opinion of their counsel, made a 
reservation looking to the reversal of judgment in 
that case, by which reversal the indebtedness of 


the road could bo paid in United States notes in- 
stead of coin. 1 

The opinions of these two gentlemen on the 
power to issue legal tender notes were therefore 
well known, and the proceedings of the court im- 
mediately following their entering upon official 
duty has given color to the oft- repeated assertions 
that the court was organized to secure a reversal 
of the legal tender decision. The next day after 
Justice Bradley took his seat, Friday, the 26th of 
March, the Attorney General moved the court that 
certain cases appealed from the Court of Claims 
should he set down for argument, and suggested 
that the leinil tender decision might be reconsidered 
in these cases. The next day the motion was con- 
sidered, and, contrary to the wishes of the justices 
who had joined in the opinion in the Hepburn case, 
an order was directed that the cases in question 
should be heard on the 4th day of April following, 
berns: the second Monday next ensuing. This 

O */ CD 

order was in disregard of the usual practice of the 
court, the time for argument in such cases being 
usually fixed by counsel subject to the approval of 
the court. Before the order was announced, how- 
ever, Mr. Carlisle, the attorney for the appellants, 
protested against a re-argument of the legal-tender 
question in these cases, the rights of his clients, 
he asserted, having been already determined. The 
Schuckers' Life of Chase. 


court, therefore, on Monday morning deferred the 
announcement of the order for the re-argument of 
the cases until the protest of Mr. Carlisle could be 
considered, and the time for considering the pro- 
test was fixed for the next day (Tuesday) after 
adjournment of the court, and this happened 

After hearing Mr. Carlisle the court immediately 
ordered that the matters involved in the motion of 
the Attorney General should be argued on the 
Thursday following; that the subject should be 
considered in conference immediately after the ad- 
journment of the court for that day ; and that the 
result should be announced on the opening of the 
court the following morning. This order was made 
against the remonstrances of the justices who had 
agreed in the judgment of the Hepburn case, and 
it is alleged that so far as the history of the court 
is known the order was unprecedented. The 
regular motion day of the court was Friday, the 
regular conference day Saturday, and in no re- 
corded case had there been any anticipation of the 
regular order of business for those days in order 
to reach a special case. 

The order was, however, carried into effect, an 
argument in progress being suspended that the 
cases might be heard. That in itself constituted 
another unprecedented movement. The conference 
was held after adjournment, and a new order was 


passed, regardless of the convenience of counsel, 
directing that the cases be heard in all matters in- 
volved in the records on the 11th of the following 
month, but the time was subsequently extended to 
the 18th. 

These cases had previously been continued under 
the order of the court, distinctly stated by the 
Chief Justice, and acquiesced in by the counsel, 
by the appellants, and by the government, that the 
legal tender question should not be reopened, but 
that both sides should abide by the decision in the 
Hepburn case. The Chief Justice called the at- 
tention of the justices to these facts, but without 
effect. The appellants in these cases, however, 
knowing w r ell enough what would be the decision 
of the court, decided to withdraw the cases, and so, 
when the time for argument arrived, their counsel 
moved that the cases be dismissed. To this motion 
the Attorney General and Justices Miller and Brad- 
ley objected, but, after consultation, the court 
granted the motion, Justice Bradley objecting. 
The opportunity to reverse the decision in the 
Hepburn case was lost at present, but the country 
knew that the reversal would come in due time, 
and the fact of such reversal was discounted. The 
appointment of these two justices, whose opinion 
on the legal tender question was well known in 
advance, the fact of their connection with a great 
railroad corporation, and their well-known owner- 


ship of its stock, the haste of the court in at- 
tempting to secure a reversal of the legal tender 
decision together, created a painful impression that 
other interests than those of the government were 
bein^ served. 

The court had not long to wait for an oppor- 
tunity to reverse the opinion, as had been fore- 
shadowed in the December term, 1870. Several 
cases came up similar in character, the controlling 
questions of which were : — 

1st. Are the acts of Congress known as the 
legal tender acts constitutional when applied to 
contracts made before their passage ? 

2d. Are they valid as applicable to debts con- 
tracted since their enactment? 

The cases were considered in the full bench, and 
by a vote of five to four the court held such acts 
of Congress constitutional as applied to contracts 
made either before or after the passage of the acts, 
thus overruling the previous decision in the matter. 
The opinion was rendered by Mr. Justice Strong, 
and concurred in by Justices Bradley, Miller, 
Davis, and Swayne ; Chief Justice Chase delivered 
a dissenting opinion, as did also Justices Nelson, 
Clifford, and Field, the court being again divided 
in accordance with the opposing politics of the 
justices composing it. 

In delivering the opinion of the court, Justice 
Strong recounted the exigencies of the government 


which brought the notes into existence, and main- 
tained that Congress, in such an emergency, being 
called upon to devise means for maintaining the 
army and navy, — in fact to preserve the govern- 
ment created by the Constitution, — not only had the 
power to issue the notes, but that the condition of 
affairs justified such an issue. lie also plainly inti- 
mated that Congress, under its constitutional power 
to coin money and to regulate the value thereof, 
could at any time declare Treasury notes a legal 
tender, if such declaration should be adapted to 
cariying into execution the admitted powers of the 

The power of Congress to issue Treasury notes 
at any time and in any amount, and to make them 
a legal tender in payment of private debts, has 
since been distinctly affirmed by the court. 

The act of May 31, 1878, prohibited the further 
retirement of United States notes, and provided 
that when any of the notes might be redeemed or 
paid into the Treasury, they should not be retired 
or cancelled, but should be reissued and paid out 
again and kept in circulation. The effect of this 
act, so far as it applied to the reissue of notes that 
had been redeemed, was to authorize the issue of 
new legal tender notes in time of peace, and when 
no necessity of the government required such an 
emission. A case testing the power of Congress 
to thus authorize the issue of such notes was car- 


ried to the Supreme Court on a writ of error, and 
a decision therein was rendered by the court in 
March, 1884. A synopsis of the decision pre- 
pared by the court is as follows : — 

"The question presented by this case, as it is 
stated by the court, is ' whether notes of the United 
States, issued in time of Avar, under acts of Con- 
gress declaring them to be a legal tender in pay- 
ment of private debts, and afterward, in time of 
peace, redeemed and paid in gold coin at the 
Treasury, and then reissued under the act of 1878, 
can, under the Constitution of the United States, 
be a legal tender in payment of such debts.' . . . 

"The court holds, therefore, that Congress has 
the power to issue the obligations of the United 
States in such form, and to impress upon them 
such qualities as currency for the purchase of mer- 
chandise and the payment of debts as accord with 
the usage of sovereign governments. The power, 
as incident to the power of borrowing money and 
issuing bills and notes of the government for 
money borrowed, of impressing upon those bills 
or notes the quality of being a legal tender for the 
payment of private debts, was a power universally 
understood to belong to sovereignty in Europe 
and America at the time of the framing and adop- 
tion of the Constitution of the United States. 

"This power of making the notes of the United 
Sates a legal tender in payment of private debts, 


being included in the power to borrow money and 
to provide a national currency, is not defeated nor 
restricted by the fact that its exercise may affect 
the value of private contracts. If, upon a just and 
fair interpretation of the whole Constitution, a 
particular power or authority appears to be vested 
in Congress, it is no constitutional objection to its 
existence or to its exercise, that the property or 
the contracts of individuals may be incidentally 

" Congress," the court says, in conclusion, " as 
the legislature of a sovereign nation, beinsr ex- 
pressly empowered by the Constitution ' to lay and 
collect taxes to pay the debts and provide for the 
common defence and general welfare of the United 
States,' and 'to borrow money on the credit of the 
United States,' and ' to coin money and regulate 
the value thereof and of foreign coin," and being 
clearly authorized, as incidental to the exercise of 
those great powers, to emit bills of credit, to charter 
national banks, and to provide a national currency 
for the whole people, in the form of coin, Treasury 
notes, and national bank bills, and the power to 
make the notes of the government a legral tender 
in payment of private debts being one of the 
powers belonging to sovereignty in other civilized 
nations, and not expressly withheld from Congress 
by the Constitution, we are irresistibly impelled to 
the conclusion that the impressing upon the Tress- 


ury notes of the United States the quality of being 
a legal tender in the payment of private debts is 
an appropriate means, conducive and plainly 
adapted to the execution of the undoubted powers 
of Congress, consistent with the letter and spirit 
of the Constitution, and therefore, within the mean- 
ing of that instrument, ' necessary and proper for 
carrying into execution the powers vested by this 
Constitution in the government of the United 

"Such being our conclusion in the matter of law, 
the question whether at any particular time, in war 
or in peace, the exigency is such, by reason of un- 
usual and pressing demands on the resources of 
the government, or of the inadequacy of the sup- 
ply of gold and silver coin to furnish the currency 
needed for the uses of the government and of the 
people, that it is, as a matter of fact, wise and ex- 
pedient to resort to this means, is a political ques- 
tion, to be determined by Congress when the 
question of exigency arises, and not a judicial 
question to be afterward passed upon by the 

"It follows that the act of May 31, 1878, is 
constitutional and valid, and that the circuit court 
rightly held that the tender in Treasury notes re- 
issued and kept in circulation under that act was a 
tender of lawful money in payment of the defen- 
dant's debt to the plaintiff. 


"The judgment of the Circuit Court is affirmed." 
Opinion by Justice Gray. Justice Field dissenting. 

In this decision a political line is again drawn 
among the justices, but prominent men of both 
parties are already alarmed at the dangerous doc- 
trine enunciated by the court. 

Article 10 of the amendments to the Constitu- 
tion is as follows : — 

" The powers not delegated to the United States 
by the Constitution, nor prohibited by it to the 
States, are reserved to the States respectively, or 
to the people." 

The court holds that in the issue of notes Con- 
gress has such power as accords " with the usage 
of sovereign governments," and that the power 
" of impressing upon these bills or notes the quality 
of being a legal tender in the payment of private 
debts was a power universally understood to be- 
long to sovereignty in Europe and America at the 
time of the framing and adoption of the Constitu- 
tion of the United States." 

No such omnipotent power was ever claimed for 
Congress by the most ultra federalist in the early 
days of the Republic, as that conceded to it by 
this court, and measures looking to a reversal of 
the decision of the court by an amendment to the 
Constitution expressly prohibiting to Congress 
such powers have already been introduced into 
thai body. Such an amendment will, in time, 


doubtless become a part of the organic law of the 
land. Meanwhile the sacredness of contracts, the 
stability of wealth, the success of business enter- 
prises, and the prosperity of the whole country, 
must depend upon the integrity of that body, 
whose actions have too often been the result of 
successful log-rolling, or been dictated by a poli- 
tical caucus. 

Thirty years ago this same court decided that 
the nesrro had no rights which the white man was 
bound to respect, and only four years of bloody 
war reversed the decision. The pending amend- 
ment to the Constitution, reversing the legal 
tender decision of the same court, should be vigor- 
ously pressed to adoption in season to prevent, not 
another war, but national disgrace and bankruptcy. 



The coinage act of April 2, 1792, which em- 
bodied the recommendations of Mr. Hamilton, pro- 
vided for the manufacture of certain gold coins, as 
follows : Eagles, each to be of the value of ten 
units or dollars, and to contain 247A grains of 
pure gold, or 270 grains of standard, thus making 
these coins eleven-twelfths fine ; and half-eagles 
and quarter-eagles, of the same fineness and of 
proportional weight. The act also provided for 
the coinage of silver dollars or units, each to be 
of the value of the Spanish milled dollar, con- 
taining 371] grains of pure silver, or 41G grains 
of standard silver ; and of halves, quarters, and 
dimes or tenths, of the same fineness and propor- 
tionate weight. Coinage of both gold and silver 
coin was to be free to all persons bringing bullion 
to the mint for that purpose. All the coins were 
to be legal tender in all payments for their face 



The legal relation in weight of pure gold to 
pure silver was thus fixed by this act at 1 to 15. 

This ratio happened to be nearly the commer- 
cial one for the year 1793 ; but it was too small 
for the next year, and too large for the two 
succeeding years. In 1797 the commercial ratio 
was 1 to 15.45 ; in 1799 it was 1 to 14.29 ; in 
1809 it was 1 to 1G.25 ; and up to the present time, 
in one year only (1813), has it ever been less than 
1 to 15. Gold was therefore, on the whole, un- 
dervalued, and consequently little of it came to 
be coined, and less went into circulation. Silver 
coins were still manufactured at the mints, but 
bank issues and foreign coins furnished most of 
the circulating medium of the country. The bank 
issues were, however, uncertain in value, and in 
some parts of the country a considerable demand 
arose for a coin circulation, whereupon the ques- 
tion of a circulating medium at once got into 
politics. The Democratic party, headed by Sen- 
ator Benton, of Missouri, demanded that the weight 
of gold coin should be so reduced as to equalize 
its commercial value to a corresponding amount 
of silver coin ; or, if there was to be any differ- 
ence, that gold should be so underrated as to en- 
sure its circulation. Mr. Benton asserted that, in 
adjusting at any time the relative value of gold 
and silver so as to retain both in circulation, there 
was a nicety, but no difficulty. Such adjustment, 


he asserted, was the proper work for a committee 
of Congress. Several nations of antiquity had 
accomplished it, some modern nations also, among 
which were England and France ; and he intimated 
that in the latter country the adjustment was es- 
tablished by the genius of Napoleon. 

As England had adopted the single standard of 
gold in 1816, and as gold then circulated in France 
only at a premium in silver, his mention of the 
modern nations which had achieved the simultane- 
ous circulation of both metals was not so happy 
as to create any curiosity as to which were the 
nations of antiquity to which he referred. 

But relief from the alleged evils of Hamilton's 
coinage act was at hand. A measure was intro- 
duced into Congress before which, Mr. Benton 
said, the machinery of distress was to balk. The 
bill originated in the House, and provided for 
"equalizing the value of gold and silver," and 
" legalizing the foreign coins of both metals." 
The ratio between the two metals was fixed at 1 
to 15f . Mr. Benton, in his " Thirty Years' View," 
states that this ratio at first commended itself to 
all who seemed best calculated, from their pursuits, 
to understand the subject; that the majority of 
speakers, and the eighteen banks of New York, 
with Mr. Gallatin at their head, favored it; that 
the difficulty of adjusting this ratio so that neithei 
metal could expel the other had been a stumbling- 


block for a great many years ; and that now this 
difficulty seemed to be as formidable as ever ; that 
refined calculations were «;one into, scientific liirht 
was sought, history was rummaged back to the 
times of the Roman empire ; but that there seemed 
to be no way to get an accord of opinion, either 
from the lights of science, the voice of history, or 
the results of calculation. 

The author of the "View," however, then took 
up the question in a practical point of view, re- 
gardless of history, calculations, and opinions of 
bank officers ; and, looking to the actual and equal 
circulation of the two metals in different countries, 
he saw, or thought he saw, that this equality and 
actuality of circulation had existed for three hun- 
dred years in the Spanish dominions of Mexico 
and South America, where the ratio was 1 to 16. 
Taking his stand upon this single fact, as a prac- 
tical test which solved the question, he urged the 
adoption of this ratio, and all the friends of the 
gold question soon rallied to his support. 

One to 16 was at last found to be the true ratio 
between the two metals. Truly the finder de- 
served the sobriquet of " Old Bullion " given him 
by his admiring friends. 

The proposed measure became a law June 28, 
1834. Under this act the eagle was to contain 
232 grains of pure gold, or 258 grains of stand- 
ard gold, a reduction in weight of 15| grains of 


pure cold. The half-eagle and quarter-eagle wore 
to be of equal fineness and proportionate weight.* 
Upon the passage of this act Mr. Benton and 
his friends were in high glee, but their joy was 
brief. The gold coins Mere so reduced in weight 
that it was now cheaper to pay debts in them than 
in silver coin. In consequence no more silver 
was coined for circulation, and the amount then in 
circulation, upwards of $50,000,000, at once dis- 
appeared, being sent abroad in payment of obliga- 
tions, or melted down for other uses at home. 
This sudden contraction of the currency created 
considerable distress, and the loss of the small 
silver pieces caused no little inconvenience. The 
panic of 1837 followed. Depreciated bank bills, 
"shin plasters," and a few worn Mexican pieces 
came into circulation to take the place of full- 
weight silver pieces, which had been superseded 
by the cheaper gold coins. The author of the 
"View" admits that he was now called a f 'Gold 
Humbug;" that the newspapers expended their 
wit "in stale depreciation of his efforts;" but 
while apparently unable to explain what had be- 
come of the silver which the experience of Mexico 
led him to suppose would circulate with gold, he- 
still vaunted the excellence of his scheme, boasted 
of a coining abundance of his favorite metal, and 

* In ls:J7 the amount of pure gold in these coins was slightly 
reduced to make the standard nine-tenths fine. 


prophesied that at some day "gold would flow up 
the Mississippi and spread through the land." 
Gold did come, all that was wanted, but with it 
came no benefits sufficient to compensate for the 
disappearance of silver. 

By the reduction in the weight of the gold 
coins the gold dollar became the unit of account, 
changing the terms of all pre-existing contracts 
.payable in dollars to the extent of its depreciation 
below the value of the silver dollar. 

It remained the unit of value until, by the act of 
February 25, 18(32, the paper issues of the gov- 
ernment thereby authorized were declared a legal 
tender in payment of debt. Gold now became a 
commodity, and was quoted at a premium, as was 
silver when gold took its place. Duties on im- 
ports and interest on public debt were, however, 
still payable by law in coin, and enough gold 
coin to meet these payments remained in circula- 
tion. To avoid handling the actual coin, the 
fifth section of an act approved March 3, 1863, 
authorized the Secretary of the Treasury to re- 
ceive gold coin or bullion on deposit, and to 
issue therefor certificates in denominations of 
not less than $20, to be used in payment of coin 
interest, and to be receivable in payment of 
customs dues. The coin deposited was to be held 
for the redemption of the certificates. The issue 
of these certificates proved to be a great con- 


venience to brokers, bankers, and bullion dealers, 
who in this way had use of the Treasury vaults in 
which to store specie free of risk and expense to 

Although the issue of United States notes drove 
most of the gold from circulation, foreign ex- 
changes continued to be made in terms of that 
metal ; hence commerce was compelled to recog- 
nize two kinds of money, although but one was in 
"reneral circulation. This condition of affairs 
brought into existence the Gold Board of New 
York, at which exchanges of gold and currency 
could be made, and the rates of exchange prevail- 
ing at this Board fixed throughout the country the 
relation between the two. As lomj as the govern- 
ment retained the luxury of two kinds of money, 
the existence of this Board was a convenience, if 
not a necessity, to persons engaged in foreign 
trade. Its operations may be thus illustrated : A 
Liverpool cotton merchant telegraphs to the New 
York commission house, "If you can buy ono 
thousand bales of middling cotton so as not to 
cost me more than ten pence or twenty cents gold 
per pound, laid down in Liverpool, you may do 
so." The commission merchant finds that the 
freight, insuranco, and other charges will amount 
to about two cents. He can therefore afford to 
give eighteen cents, gold, for the cotton itself. 
He goes into the cotton market and inquires the 


price of cotton in gold. The dealer answers that 
cotton is sold for notes, not for gold ; that the 
planters in the South pay their laborers and buy 
their provisions and agricultural implements with 
notes ; and that they can tell what their cotton 
costs them in notes, but not what it is worth in 
gold. The price of cotton is 27 cents a pound in 
notes. His next inquiry is to ascertain the price 
of gold, so as to know how much in notes he can 
afford to pay for the cotton without exceeding 
the orders of his Liverpool correspondent. He 
finds gold selling at 150. In other words, his 
18 cents gold are worth exactly 27 cents in notes, 
and he can therefore buy his cotton at this rate 
without exceeding his correspondent's orders. 
Thus far the transaction is simple enough. He 
has only to take as much gold as would pay for 
the thousand bales of cotton, sell it at 150, and 
with the notes pay the cotton dealer, and the 
whole transaction is concluded. But the Liver- 
pool merchant has not sent the gold. It will be 
several days before the cotton will be ready for 
shipment, and not until thus ready will payment 
for it be made. Should he contract for the cotton 
without any assurance at what rate he could dis- 
pose of his gold when received, he would take a 
risk of loss in case the value of gold should in 
the meanwhile depreciate. To avoid this risk he 
contracts at the Gold Board to sell sufficient gold 


to pay for the cotton at 150, the gold to be deliv- 
ered at his option, within say ten days. He now 
can purchase his cotton with safety, store it aboard 
the vessel, and procure the bill of lading there- 
for. This bill of lading he presents to a dealer 
in foreign exchange, obtains the gold therefor, 
which he delivers to the party to whom he 
has previously sold it, and the transaction is 
closed. Without the intervention of the Gold 
Board he would have run the risk of paying 
more for his cotton than his correspondent had 

What was a useful and necessary adjunct to 
transactions involving exchanges with foreign 
countries became a resort for fictitious trading, 
and fortunes there changed hands as rapidly as 
they ever did on the green cloth of Baden or 
Monaco. Nor was the speculation confined to 
New York. Telegraphic indicators furnished to 
all the cities quotations of the ever-changing 
price of gold. Speculation was raised to a fever- 
ish height throughout the country, and attention 
was turned to the Gold Board in New York as 
eagerly as to the embattled army at the front, en- 
gaged in a life-and-dcath struggle for the nation. 
The fluctuations in the price of gold in 18G3 and 
1864 were remarkable. Gold was quoted on the 
1st of January, 1863, at 134 ; on the 24th at 150 ; on 
the 31st at 160 ; on the 12th of February at 154^, 


and on the 28th at 172i. The price then began 
to decline, and on the 28th of March gold stood 
at 143£ ; on the 28th of August at 1221, and the 
lowest figure for 1863 ; but the fluctuations con- 
tinued during the remainder of the year, resulting, 
on the whole, in a considerable advance in the price. 
On the 1st of January, 1864, gold was quoted at 
152; on the 26th of February at 16<H ; on April 
12th it was 175 ; and on the 26th it ran up to 184 ; 
on the 10th of May it was 168 ; and on the 27th 
186]. These fluctuations reacted upon prices, and 
turned the most legitimate of business enterprises 
into a kind of gambling. The government had 
brought about this condition of affairs by its 
unfortunate legislation, and to the government 
everybody turned for relief. As the gold paid 
into the public Treasury on account of duties 
on imports was in excess of its requirements 
for the payment of interest, the government owned 
a considerable amount of that coin. It was now 
generally supposed that if the government should 
enter the market as a "bear," the premium on 
gold would be reduced. Accordingly Congress, 
in March, 1864, authorized the Secretary of the 
Treasury to dispose of any surplus gold in the 
Treasury by selling it for other currency. 

On the 12th of April following the passage of 
this act, gold reached 175, and seemed likely to 
reach a far higher figure. Secretary Chase was 


urged from all quarters to enter the market, sell 
cash gold, break down the premium, and teach the 
gold gamblers a lesson. To these entreaties he 
yielded, and on the evening of April 13 he started 
for New York, at which city he arrived the next 
morning. The "bulls," notwithstanding the au- 
gust presence of so important an official, showed 
fight, and during the day tossed the premium to 
89. The Secretary was, however, armed with the 
authority of Congress, a body to which had been 
delegated the power to regulate money, and ho 
opened wide the vaults of the Sub-Treasury, and 
poured into Wall Street $11,000,000 of solid 
gold, striking a momentary terror to the hearts of 
his adversaries. But the next day he wrote to the 
President : "The sales which have been made here 
yesterday and to-day seem to reduce the price, 
but the reduction is only temporary." The Sec- 
retary returned to the Department, and as soon as 
the pressure was removed the premium rapidly 
advanced, and gold, on the 20th of April, was 
quoted at 184. 

The result of the governmental bearing opera- 
tions in Wall Street was, one would think, suffi- 
ciently convincing that even the great power of 
( 'ongress was unequal to the task of controlling 
the market. But Congress admitted no such in- 
capacity. There was yet one untried resource, 
the majesty of a restraining law. A bill \* as 


promptly introduced in the Senate, the purpose of 
which was, as stated by Senator Sherman, to pre- 
vent gambling in gold. It prevented sales of 
coin for future deliveries, and it prohibited also 
any sale of gold by any broker or banker at other 
than his regular place of business. The penalty 
for the violation of this act was to be a fine of not 
less than $1,000, nor more than $10,000, and im- 
prisonment not less than three months nor more 
than one year, or both, at the discretion of the 
Court. Mr. Shuckers, the biographer of Sec- 
retary Chase, says this bill was the result of a 
protracted consultation between the Secretary, 
experienced financial gentlemen, and members of 
Congress, who agreed generally that if the bill 
did no good, it was not likely to do much harm. 
This acknowledgment of doubt was creditable to 
the intelligence of the gentlemen in conference, 
but it must have been humiliating to the pride of 
the Congressional portion ; for had not the Consti- 
tution declared that Congress had power to regu- 
late the value of money, and had not the author 
of the legal tender act declared that, by the suc- 
cess of that measure, the government would avoid 
"shinning" through Wall Street? 

The bill for the suppression of gambling in 
gold became a law June 17, 1864, and w 7 ent at 
once into operation. Its disturbing effect upon 
the price of gold became at once conspicuous 


On the 20th gold closed at 1981 ; on the next day 
the act was authoritatively notified to the Gold 
Board, and its evil effects became apparent. 
Gold ceased to be called at the Board, but no 
power could prevent men from dealing in it. 
Gold stood on the 21st at 208 ; the next day at 
280, but closed at 213 ; on the 27th it reached 238 ; 
on the 29th, 250 ; on the 1st of July it reached 280, 
thou fell to 255, and closed at 225. The next 
day it fluctuated between 225 and 237. By this 
time Congress was impressed with the disastrous 
result of its legislation, and beiyan to talk of re- 
pealing this act, which, at worst, its advocates 
thought, could do no harm. On the 6th the act 
was repealed, but too late ; the mischief had been 
done. Violent fluctuations followed in the fever- 
ish market which the act had created ; on the 10th 
the rate varied between 200 and 270 ; and the 
next morning it was 285, the highest point reached 
during the war. From this point it receded, but 
slowly. Of course, the stock, grain, and pro- 
vision markets were strongly affected, and the ca- 
lamitous effect of the act was felt in the increased 
price of commodities. Perhaps no greater amount 
of evil was ever crowded into so brief a period by 
the interference of legislation with the functions 
of a circulating medium ; certainly no measure 
more disastrous and humiliating has ever been 
transferred from a political conference to the stat- 
utes of this country. 


Congress made no further attempt to control the 
gold market, but as coin accumulated in the Treas- 
ury beyond need for coin payments, the Secretary 
was compelled, from time to time, to sell the 
surplus for notes which were needed in current 
transactions. These sales necessarily affected the 
markets more or less, but this disturbance could 
not be avoided as long as depreciated paper fur- 
nished the circulating medium. 

The Treasury also tried other schemes to repress 
the advance in the gold premium. For a time it 
privately sold exchanges on London through the 
National Bank of Commerce in New York, and 
also publicly through the New York Sub-Treasury. 
It also issued to importers gold certificates of de- 
posit upon the deposit of United States notes, at 
one-quarter of one per cent less than the current 
rate of coin. These certificates were not negotiable, 
and were receivable in payment of customs dues at 
their face value ; but, despite every precaution, 
they became subject to speculation, and this plan, 
for which a great triumph in checking gold specu- 
lation was predicted, was found to be so incon- 
venient and dangerous that, after a few weeks, it 
was abandoned. 

For a time the sale of gold was conducted pri- 
vately through the Sub-Treasury in New York, but, 
after 1807, contemplated sales were usually an- 
nounced several days in advance, and generally 


were limited in amount to the needs of the public 

Chief among the schemes of speculators during 
these occurrences was that of making gold scarce 
in order to "move the crops." It was plausibly 
urged by them that farmers would withhold grain 
from the market until a certain price therefor in 
paper could be obtained. As the gold premium 
advanced, prices advanced, consequently the point 
at which wheat would be sold could be reached by 
making gold scarce and the premium high. To 
the exporter of grain the increase of premium was 
of no moment. He was paid for his shipments in 
coin, and he could, without loss, increase the price 
to be paid the purchaser precisely as the premium 
increased. As prices of other commodities fol- 
lowed the rise in premium, the money the farmer 
obtained for his wheat, at the higher rate, was 
worth no more to him than the lower. 

This newly found device for moving the crops 
met with great favor among many public officials, 
and was diligently advocated by speculators, who, 
while pretending to be shipping grain, were really 
speculating in the rise in the gold premium. 

In the summer of 18 G9 gold was quoted at about 
135. Sales of gold by the Treasury, in the amount 
of $1,000,000, were being made every alternate 
Wednesday. An abundant grain crop had been 
harvested throughout the west, and shipments of 


grain to the seaboard were made as freely as 
prices would warrant ; but the speculators made a 
great outcry that the Treasury should increase the 
gold premium and further stimulate the movement 
of the crops. In August, certain well-known 
gentlemen in New York joined in a gold specula- 
tion, operating for an increase in the premium. 
To secure success they desired, 

1st. To know precisely how much gold was held 
by the banks and the Treasury. 

2d. To have the ordinary sales of gold sus- 
pended. And — 

3d. To be assured that in case of a rise in the 
premium the Treasury would not interfere by sell- 
ing o-old. 

They knew that outside of the Treasury there 
was comparatively but a small amount of gold, 
perhaps not $25,000,000 all told. By purchasing 
gold persistently at the Gold Board, they believed 
they could obtain control of all the gold in the 
street, and force the settlement of contracts upon 
their own terms. A relative of the President was 
associated with them in the enterprise, and there 
is reason to believe that the Assistant Treasurer at 
New York aided the scheme. Of the action taken 
in this matter by public officials the records show 
as follows : — 

On August 18, the Assistant Treasurer at New 
York addressed a letter to the Secretary of 


the Treasury, stating that he was under apprehen- 
sion with regard to gold certificates issued by his 
office, and su^srestino: that the national bank ex- 
aminers in the principal cities be instructed, on 
a certain fixed day, to run over the specie items 
of the banks, and to take a brief record of the 
amounts held in gold and in certificates. Two 
days later he recommended that the inquiry be ex- 
tended to the several Treasury offices. 

The information asked for would, if furnished, 
have been wholly useless to him for any purpose 
of checking his record of issues, for which he 
claimed to desire it. A numerical record of every 
certificate issued was kept at the Treasury as well 
as at his own office, and the amount outstanding 
could at any time have been verified with very 
little labor ; but in order to answer his request 
the Acting Secretary called upon the banks 
and the Treasurer of the United States to report 
the respective amounts of gold and of gold cer- 
tificates held by the banks and in the Treasury 
on the morning of the 8th day of September fol- 

Meanwhile the projectors of the scheme had not 
been idle. They had secured an interview with the 
President, and impressed him with the importance 
of moving the crops promptly by suspending the 
sale of gold until the premium became high enough 
to induce the farmers to part with their wheat. 


On August 30, one of the clique addressed a letter 
to the Secretary of the Treasury, complimenting 
him for refraining from putting gold on the market 
at that season of the year, when the bulk of our 
agricultural products was to be marketed, and ex- 
plaining to him the great advantages which would 
result from a policy which could not but enrich 
the whole country by causing a large exporta- 
tion of grain and other agricultural products. 
On the 20th he wrote a£>ain, reasserting his 
opinion that the premium on gold should be 

"In my judgment," he said, "the government 
cannot afford to sell gold during the next three 
months while the crops are being marketed, and if 
such a policy were announced it would immediately 
cause a high export of breadstufl's and an active 
fall trade." This specious reasoning had its effect 
upon the President, and he addressed a letter 
about the 3d of September to the Secretary of the 
Treasury, then away from Washington, in which 
he expressed the opinion that it was undesirable 
to force down the price of gold. He spoke of the 
importance to the West of being able to move its 
crops. On the 12th he addressed another letter 
from New York, stating that a desperate struggle 
was then taking place between the bulls and bears 
of Wall Street, and that each party wanted the 
government to help it out. He advised the Secre- 


tary to move on without change until the struggle 
was over. On the 20th the Treasury Department 
sent to the Assistant Treasurer at New York the 
information that he desired in reference to the coin 
and coin certificates held by the national banks. 

On the same day the member of the clique who 
had previously written to the Secretary wrote that 
there was a panic in Wall Street, engineered by a 
bear combination, which had withdrawn currency 
to such an extent that it was impossible to do 
ordinary business. He now advised that, until the 
crops were moved, the banks should be given some 
currency out of the Treasury reserve. The facts 
were, that the clique of which he was a member, 
having matured all their plans, had several days 
before commenced the purchase of gold, running 
up the price to such an extent that all business was 
disturbed and an artificial stringency in the cur- 
rency created. On the morning of the 24th of 
September, gold was at 150, before noon at 162, 
and the excitement in Wall Street was unpre- 
cedented. At 11.45 that day the Secretary tele- 
graphed the Assistant Treasurer to sell $4,000,000 
of gold. This broke the combination, and gold, 
in fifteen minutes, was selling at 140 for cash. 
For once the Treasury was in Wall Street with 
effect, either for good or for evil. 

Of the allegations that were frequently made, 
that public officials aided in this plot, there never 


was a shadow of proof, except, perhaps, in the 
case of the Assistant Treasurer at New York. 
For the part he took in the affair he was compelled 
to resign his position. The result of the combi- 
nation was immense loss to many innocent indivi- 
duals, and the wreck of some of the clique to 
whom the others proved unfaithful. A general 
disturbance was felt throughout the whole country, 
and gave to the day in which the scheme cul- 
minated the name of " Black Friday," which will 
be long remembered in the annals of the country. 
Of the operations of the parties other than gov- 
ernment officials, the following account, taken from 
a newspaper published at that time, furnishes full 
information : — 

"In the spacious exchange room of the Gold 
Board, crowded as it had never been crowded, 
even in the wildest excitement of war times, amid 
the strangest variations of deathlike silence and 
tumultuous uproar, the pallid, half conscience- 
stricken brokers of this gambling clique appeared, 
one after another, to do their dirty work. By the 
little fountain which plays in the centre of the floor, 
and around which the principal business is trans- 
acted, first one bid arose, 145 for $100,000, and 
there was no response. Then another bid, 146 
for $100,000, and again no answer ; 146, 147, 148, 
149 for $100,000, with a pause between each, all 
amid deathlike silence. 


"The hundreds gathered there, and the thousands 
who read the ominous words on all the telegraphic 
indicators in the principal business offices in the 
city, and the hundreds of thousands who watched 
the telegraph offices throughout the country, stood 
appalled. Each one per cent advance involved 
losses of millions ; the gain was with the clique. 
Who could tell what would be the end? There 
was no resisting such power. They could advance 
to 200 if they chose. And the usually surging, 
bustling, shouting mass of humanity crowded there 
was held silent, almost motionless, as by a magic 
spell. One hundred and fifty is now bid for 
$100,000, and despair suddenly gives back life to 
many. They rush eagerly to bid and buy. Orders 
come in by telegraph to buy at any price. Mes- 
sengers from all parts of the city, the great bank- 
ers, the merchant princes, from up-town and 
down-town, force their way in through the crush, 
and give back to the brokers the sense of reality 
which they seem to have lost amid the dream-like 
terror. The stillness is suddenly succeeded by 
frantic excitement. Transactions of enormous 
magnitude are made amid the wildest confusion, 
and the most unearthly screaming of men, always 
excitable, now driven to the verge of temporary 
insanity by the consciousness of ruin, or the delu- 
sive dream of immense wealth. But amid all the 
noise and confusion the penetrating voices of the 


leading brokers of the clique are still heard ad- 
vancing the price at each bid, and increasing the 
amount of their bids at each advance, until at last, 
with voice overtopping the bedlam below, the 
memorable bid burst forth, ' 160 for any part of 
$5,000,000.' Again the noise was hushed. Terror 
became depicted on every countenance. Cool, 
sober men looked at one another, and noted the 
ashy paleness that spread over all. Even those 
wdio had but little or no interest at stake were 
seized with the infection, of fear, and were con- 
scious of a great evil approaching. And from the 
silence again came forth that shrieking bid, '160 
for $5,000,000,' and no answer; f 161 for $5,000,- 
000,' « 162 for $5,000,000,' still no answer; f 162 
for any part of $5,000,000.' And a quiet voice 
said, ' Sold $1,000,000 at 162.' 

"That quiet voice broke the fascination. The 
bid of 162 was not renewed. But 161 was again 
bid for a million, and the same quiet voice said, 
' Sold ; ' and the bid of 161 was not renewed. But 
160 was again bid for $5,000,000. Then dimly it 
dawned upon the quicker-witted ones that, for 
some reason or other, the game W'as up. As if 
by magnetic sympathy the same thought passed 
through the crowd at once. A dozen men leaped 
furiously at the bidder, and claimed to have sold 
the whole $5,000,000. To their horror the bidder 
stood his ground and declared he would take all. 


"But before the words had fairly passed his lips, 
before the terror at his action had had time to gain 
men's hearts, there was a rush amid the crowd. 
New men, wild with fresh excitement, crowded to 
the barriers. In an instant the rumor was abroad, 
' The Treasury is selling.' Quick as thought men 
realized that it was not safe to sell to the clique 
brokers. Scarcely any one now wanted to buy. 
All who had bought were mad to sell at any price, 
but there were no buyers. In less time than it 
takes to write about it the price fell from 1(32 to 
135. The great ffijyantic cold bubble had burst, 
and half Wall Street was involved in ruin." 

Congress upon assembling in December prompt- 
ly ordered an investigation as to the cause of the 
disaster. It could not well do otherwise, the 
Treasury having entered Wall Street to control 
the gold market in the interest of the bears. 
Nothing came from the investigation, however, 
except two reports from the committee appointed 
to do the work, the opinions of the members being 
divided on the subject according to their political 
predilections, and the Treasury resumed the ordi- 
nary sales of gold. 

In February, 1873, another coinage act was 
passed, making the gold dollar the standard unit 
of account, but no change was made in the weight 
or fineness of the gold coins. It authorized, how- 
ever, the coinage of the gold dollar and three 


dollar pieces, and made all gold coins of the 
United States a full legal tender in all payments 
when not below the standard weight and limit of 
tolerance, as therein provided for each piece, and 
when below such standard and tolerance to be a 
legal tender at valuation in proportion to their 
actual weight ; " And any gold coin of the United 
States, if reduced in weight by natural abrasion, 
not more than one-half of one per centum below 
the standard weight prescribed by law, after a cir- 
culation of twenty years, as shown by its date of 
coinage, and at a ratable proportion for any period 
less than twenty years, shall be received at their 
nominal value by the United States Treasury," 

The standard weight of a gold dollar was fixed 
at 25.8 grains troy. The deviation allowed by 
law in adjusting the weight of gold coins was 
to be, in the double eagle and the eagle one-half 
of a grain, and in the other coins one-fourth of a 
grain for each piece. Precisely at what point one 
of these coins through abrasion ceases to be a legal 
tender, or not receivable at the Treasury, be- 
comes under the law an interesting question in 
vulgar fractions, and, when ascertained, the pos- 
sessor would require a nicely adjusted scale to 
make his information of any service. 

Congress borrowed this provision of the coinage 
act from England, in which country it had for 


some time existed. When first put into operation 
in that country considerable attention was paid to 
its provisions, and society ladies took pride in 
being able to tell precisely how much any worn 
coin was worth. Miniature scales accurately ad- 
justed and highly ornamented were manufactured 
for the purpose, and ladies wore them hung about 
their necks. These scales are now frequently met 
with in pawn-shops and second-hand jewelry estab- 
lishments. No attention is now paid to the com- 
plicated requirements of the act, however, except 
by the Bank of England ; and coins, however much 
worn, pass readily at their nominal value, only the 
ignorant and the unwary ever presenting a doubt- 
ful piece at the counters of that institution. 

The coinage act of 1873 also directed that all 
coins in the Treasury below legal weight should be 
recoined, and in accordance therewith light coins, 
representing in nominal value upwards of $25,- 
000,000, were recoined into full-weight pieces at 
an expense of about $100,000. As nearly all the 
coin in the country was at that time held by the 
Treasury, but few light-weight pieces in existence 
escaped the melting-pot, and consequently the gold 
coins now in circulation are but little worn or 

Upon the resumption of specie payments in 
January, 1879, a vast amount of gold coin re- 
turned to this country from Europe, where it had 


been driven by the paper issues of the govern- 
ment. Since that time the gold dollar has been 
maintained as a standard of value and a unit of 
account. Owing to the prevalence of notes of 
small denomination, however, but little gold 
appears in circulation. At this time gold is 
exported in considerable quantities to meet the 
payment of balances heretofore met b} r the expor- 
tation of cotton and agricultural products. Should 
the drain continue to any great extent, silver dol- 
lars will necessarily take the place of gold coins, 
and the silver dollar will become the unit of ac- 
count again, being worth about 15 per cent less 
than gold at the present coinage rate of 1 to 
15.98. Gold will then become a commodity and 
will again be quoted at a premium. Such is the 
beautiful diversity of a double standard ! 



The Spanish milled dollar, or, more strictly 
speaking, the Mexican pillar-piece, was a popular 
coin amonof the colonists. The British mint de- 
clared in 1707 that it contained -386| grains of 
pure silver. By the British standard at that time 
444 grains of such silver was rated at 62 pence. 
Consequently the dollar contained 54 pence. A 
pound sterling contained 240 pence, and was 
therefore worth 4.44$ of those dollars, and this 
valuation of the pound sterling continued as an 
assumed value until January 1, 1873, notwith- 
standing that meanwhile both the pound and the 
dollar had been subjected to many important 

In the year 1772 the amount of pure silver in 
the dollar was by law reduced to 377£ grains. In 
1785 the Congress of the Confederation adopted 
the dollar as a unit of account, declaring that it 
contained 375.64 grains of pure silver. 

In 1792 Congress passed an act establishing for 
the country a uniform money of account, with this 



dollar for a unit, declaring that it should contain 
371 | grains of pure, or 416 grains of standard 
silver. The same act also provided that 24.73 
grains of pure gold should be the legal equivalent 
of this dollar, and that, in all coined pieces, one 
pound of pure gold should be deemed equivalent 
to fifteen pounds of pure silver. 

The legal relation between the two metals of 
1 to 15 thus established proved to be a close ap- 
proximation to the commercial one existing at that 
time. If anything, gold was for a short time a 
little undervalued, yet but little of it came to 
the mint for coinage. Foreign gold coins, to 
which the people were accustomed, furnished a 
satisfactory medium for making coin exchanges. 
Their values were reckoned in shillings and pence, 
and the new money of account, with its dollars, 
its decimal divisions and multiples, for a long time 
met with but little favor. 

The irold and silver coins were full legal ten- 
der for their face value in the payment of all 
debts, but their paper representatives, though 
often much depreciated below their face value, 
constituted much of the circulating medium of the 
country, although not endowed with any legal 
tender power. 

Soon after the beginning of the present century 
silver became comparatively cheaper than gold, 
and a considerable amount of it found its way to 


the mint for coinage. By 1809 one pound of 
gold was worth in the market 16^ pounds of 

The legal relation, however, remained unchanged 
between the two metals. Gold therefore became 
a commodity, and the small amount coined was 
shipped abroad to pay for imported goods. Silver 
had meanwhile superseded gold as a circulating 
medium, and its comparative cheapness stimulated 
its coinage. Of silver dollars there had been 
coined, to the date mentioned, 1,439,457 pieces. 

The silver dollar was now the unquestioned unit 
of account, and in this coin all contracts calling 
for dollars could be satisfied. Mr. Jefferson, who 
was then President, had favorably indorsed the 
ratio of 1 to 15 proposed by Mr. Hamilton, and 
adopted in the coinage act of 1792. He be- 
lieved that both metals could and would circulate 
side by side under the relation fixed by that act. 
He desired that gold should circulate as well as 
silver, and, to prevent the expulsion of gold, he 
peremptorily ordered the mint to discontinue the 
coinage of the silver dollar, and Congress and the 
country seem to have approved his action, although 
taken without authority, if not in direct violation, 
of law. To the effect of this executive interfer- 
ence is probably due the fact that from 1809 to 
1836 no silver dollars were coined. 

Fractional silver pieoes, however, of like fine- 


ness and proportional weight, were freely coined, 
and were put into circulation, so far as they could 
successfully compete with the depreciated issues 
of the banks. The country, however, demanded 
a gold circulation, and in 1834 Congress enacted a 
law chano-ins: the ratio between the two metals 
from 1 to 15 to 1 to 16, by reducing the weight 
of pure gold in a dollar about seven grains. At 
this rating gold was a cheaper metal than silver, 
and the gold dollar became the unit of account. 
Gold coins now took the place of silver ones as 
rapidly as they could be manufactured at the 

Silver, at the new rating, became a commodity, 
and the coins of that metal were rapidly shipped 
abroad or melted down for uses in the arts. No- 
body would take silver to the mint to be manufac- 
tured into coins for circulation, when for it they 
could obtain gold bullion, which the mint would, 
without charge, coin into more dollars than the 
silver would make. 

The country soon became drained of silver 
"change." Consequently worn Mexican and Span- 
ish pieces, and corporation tokens, took the place 
of the full-weight pieces, which unwise legislation 
had driven out of circulation. 

A small number of silver dollars were minted 
from time to time, but only for bullion dealers, 
who found it profitable to turn their silver into 


this form for exportation. Until 1873 there had 
been coined of these pieces for purposes of circu- 
lation only $1,439,457, and these were coined 
previous to 1810. 

On the 25th day of April, 1870, the Secretary 
of the Treasury sent to Consress a bill revising 
the laws relating to the mint, assay offices, and 
coinage of the United States, accompanied by a 
report giving a concise statement of the method 
adopted in preparing the bill, of the various 
amendments proposed to existing laws, and of the 
necessity for the changes recommended. In the 
letter of transmittal the Secretary stated that there 
had been no revision of the laws pertaining to the 
mint and coinage since 1837, and he expressed a 
belief that the passage of the bill enclosed would 
conduce greatly to the efficiency and economy of 
that important branch of the public service. 

From the report it seems that in preparing the 
bill the existing laws pertaining to the matter were 
first arranged in a concise form, with such addi- 
tional sections and suggestions as seemed valuable, 
and then submitted to the different mints and assay 
offices, to the officers of the Treasury Department 
familiar with coinage operations and the accounts 
arising therefrom, and to such other gentlemen 
as were known to be versed in metallurgical and 
numismatical subjects, with a request for such 
suggestions as experience and education should 


dictate ; that in this way the views of more than 
thirty gentlemen, conversant with the manipulation 
of metals, the manufacture of coins, and the execu- 
tion of laws pertaining thereto, were obtained ; and 
that the bill was framed in accordance with these 

Among the amendments proposed to existing 
laws as set forth in the report, the important ones 
were the establishment of a Mint Bureau in the 
Treasury Department, to have charge of the opera- 
tions of the mints and assay offices, and the dis- 
continuance of the coinage of the silver dollar. 
The reason given in the report for proposing the 
latter amendment was that, under the existing legal 
ratio between the two metals, the silver dollar was 
worth a premium in gold of about three and a half 
per centum, and that consequently the gold dollar 
was the unit of account, and no change therefrom 
was deemed advisable. 

The appendix to the report also contained a 
marginal note, stating that the silver dollar was 
omitted from the bill. Subsequently, on June 25, 
1870, the Secretary of the Treasury transmitted 
to the House of Representatives copies of the cor- 
respondence of the Department, with the public 
officers and other gentlemen upon whose sugges- 
tions the bill had been framed, together with a let- 
ter from the Deputy Comptroller of the Currency, 
to whose supervision had been committed the pre- 


paration of the bill. Seven of these gentlemen 
discussed the proposition to discontinue the silver 
dollar, giving thereto their unqualified approval. 

On December 9, 1870, the bill was reported 
from the Finance Committee of the Senate, and 
printed with amendments. 

On January 9, 1871, in accordance with pre- 
vious notice, the bill came before the Senate, 
where it was discussed for two days and then 

On January 13, 1871, the House ordered the 
Senate bill to be printed. On February 25, 1871, 
the bill was reported from the Coinage Committee 
with an amendment, when it was again printed and 
recommitted. No further action on the bill was 
taken by Congress during that session. 

On March 9, 1871, the bill was again introduced 
into the House and ordered to be printed. On 
January 9, 1872, Mr. Kelly of Pennsylvania, Chair- 
man of the Coinage Committee, reported the bill 
to the House with a recommendation that it pass. 
In his opening speech he said the bill had received 
as careful attention as he had ever known a com- 
mittee to bestow on any measure. " AVe pro- 
ceeded," he said, "with great deliberation to go 
over the bill, not only section by section, but line 
by line and word by word." 

The bill, after considerable discussion, was again 
recommitted, again reported, again printed and 


recommitted, to be again reported and printed, and 
to be made the special order for March 12, 1872, 
until disposed of. An exhaustive discussion fol- 
lowed. Mr. Hooper, of Boston, in a carefully 
prepared speech of ten columns of the " Globe," 
explained the provisions of each section of the bill, 
and dwelt at length upon the proposition to dis- 
continue the silver dollar. " This dollar," he said, 
M by reason of its intrinsic value being greater than 
its nominal value, long since ceased to be a coin of 
circulation, and is melted by manufacturers of sil- 
verware. It does not circulate in commercial 
transactions with any country, and the convenience 
of these manufacturers, in this respect, can better 
be met by supplying small stamped bars of the 
same standard, avoiding the useless expense of 
coining the dollar for that purpose." 

Mr. Stoughton, of the Coinage Committee, ex- 
pressed like views. 

Mr. Potter, of New York, spoke of the change 
proposed, whereby the legal tender coin of the 
country would consist of one metal instead of two, 
and said : " I think this would be a wise provision, 
and that the full legal tender coins should be of 
gold alone." 

Mr. Kelly also said : " It is impossible to retain 
the double standard. The values of gold and sil- 
ver continually fluctuate. . . . Hence all experi- 
ence has shown that you must have one standard 


coin which shall be a full legal tender, and then 
you may promote your domestic convenience by 
having a subsidiary coinage of silver which shall 
circulate in all parts of your country as legal 
tender for a limited amount." 

On May 27, 1872, the bill passed the House, — 
yeas, 110 ; nays, 13. 

So far as it related to the silver coinage, it was 
identical with the bill prepared at the Treasury, 
w r ith the exceptions that it provided for the coin- 
age of a silver dollar weighing 384 grains, and 
made all the silver coins a legal tender for $5 in 
any one payment, instead of for all sums less than 
$1. This dollar would be but the weight of two 
half dollars, and was designed to be coined only on 
government account, as were the fractional pieces. 

Just before the passage of the bill, Mr. McNeeley, 
of the Coinage Committee, said he had carefully 
examined every line of the bill, and, understand- 
ing the subject, he was satisfied that the bill ought 
to pass. 

The bill was again printed in the Senate, and 
referred to the Committee on Coinage. Subse- 
quenth r , upon being again reported from that com- 
mittee, it was again printed. Further amendments 
were proposed, and it was again printed witli the 
amendments, and, after a discussion oec^rying 
nineteen columns of the " Congressional Glol>e," 
it passed the Senate. 


The bill was sent to the House, where it was 
again printed and referred to a Committee of Con- 
ference, which finally agreed as to its form, and 
the bill as reported from the conference became a 
law February 12, 1873. 

In place of the subsidiary dollar of 384 grains, 
with a limited legal tender quality, the Senate sub- 
stituted a trade dollar weighing 420 grains, in 
accordance with the wishes of the dealers in bul- 
lion upon the Pacific Coast, that being considered 
as the most advantageous weight for a coin to be 
used for shipment to China and Japan. 

The steps taken in framing and passing the 
act by which the coinage of the silver dollar was 
discontinued are herein so fully detailed because 
charges have frequently been made that the act 
was passed inadvertently or surreptitiously. As 
a final answer to such charges, it may be summed 
up that the bill was read in full in the Senate 
several times, and once, if not more, in the House ; 
that it was printed by order of Congress thirteen 
times ; that it was considered at length by the 
proper committees of both Houses during five 
different sessions, and that the debates on the 
bill in both Houses occupy 144 columns of the 

The passage of the act caused no material change 
in the coin circulation of the country. Since 1809 
no silver dollars had been coined for circulation, 


and the small amount which had ever entered into 
circulation had long before disappeared. Yet the 
act took from these dollars, if any there were, 
none of the properties they ever possessed. They 
were still a full legal tender in the payment of 
debts. But this property was soon to be taken 
from them. Congress, in 1867, authorized a com- 
mission to codify the statutes of the United States. 
These statutes were embraced in seventeen vol- 
umes, and for more than seven years the commis- 
sion was employed in the work, expending therein 
upwards of $80,000. The result of all this labor 
and expense was put into the form of a bill, which, 
after consideration by both Houses, became a law 
June 20, 1874. The "Revision," as it was called, 
superseded all pre-existing general laws to which 
it referred. By this "Revision" all the silver 
coins of the United States were made a legal 
tender for payments not exceeding $5, no excep- 
tion being made of the silver dollar. In this 
■way the silver dollar, whose coinage had been by 
law discontinued the year before, had now its 
full debt-pa} r ing power taken from it, doubtless 
through an error. 

Thus the silver dollar, the coinage of which 
Hamilton recommended, Jefferson forbade, and 
Benton made unprofitable, was discontinued with 
general approval, and subsequently demonetized 
by a clerical blunder. 


Hardly had the coinage act of 1873 gone into 
effect, discontinuing the issue of the silver dollar, 
when silver, as compared with gold, fell rapidly 
in price. In less than twelve months thereafter, 
the amount of silver required for the coinage of a 
dollar could be purchased in the market for 98 
cents in gold. In 1875 it could be purchased for 
94 cents ; in 1876 for 79.2 cents ; and in 1877 for 
90 cents, — the most violent fluctuation in the rel- 
ative values of the two metals of which history 
gives any record. 

Many causes combined to produce this fluctua- 
tion, some of which are well known. The' ex- 
traordinary yield of silver in Nevada had increased 
the stock on hand. The German government had, 
in 1871, undertaken to redeem the enormous 
amount of silver coin circulating in that empire, 
and to replace it with gold coin, the silver re- 
deemed to be melted down and sold at the best 
rates obtainable. Through this operation over 
seven million pounds of pure silver had been 
thrown into the market. Alarmed at the abun- 
dance of this metal, the Netherlands changed their 
coins from silver to gold, and the Latin Union — 
composed of France, Italy, Belgium, and Switzer- 
land — in 1874 suspended the coinage of silver 
throughout the Union. 

There is also much reason to believe that the 
demand for £old in the arts had meanwhile in- 


creased at a greater ratio than had the supply, 
thus enhancing the exchange value of that metal. 

Had the coming disparity in the relation be- 
tween the two metals been foreseen, the action of 
Congress in 1873, establishing a single gold stan- 
dard, would, in view of the action of European 
governments, have been considered as conservative 
and judicious legislation by many well versed in 
monetary affairs. 

By maintaining the gold dollar as a unit of ac- 
count, Congress kept the circulating medium of 
this country in harmony with that of Europe, thus 
saving to the producers in this country heavy 
premium charges in effecting exchanges, which 
bankers would have been compelled to impose to 
protect themselves against loss from the constantly 
changing relation of the two metals. 

Had the silver dollar not been discontinued, its 
coinage at the mint for purposes of circulation 
"would have been resumed upon the fall in price of 
silver bullion, and resumption of specie payments 
would have occurred probably in 1876 upon a sil- 
ver basis twenty per cent below that of gold. 
Public, state, municipal, corporate, and private 
indebtedness, contracted prior to the change of 
standard and payable in coin, would then have 
been satisfied by the payment of silver dollars, 
these coins having had a legal if not an actual 
existence at the time the obligations were con 


tracted. Nor would the debtor have had, in such 
an event, any just ground of complaint. No one 
had ever alleged of either metal an immutability 
of value, and the obligee to a contract calling for 
"coin" took a risk, which he was presumed to 
know, of being paid in the cheaper metal. 

The discontinuance of the silver dollar, how- 
ever, took from the obligor the power, if not the 
right, to satisfy his coin obligations by payment 
in silver coin. The number of private contracts 
affected by the discontinuance of the silver dollar 
in the country was probably not great, nor their 
amount excessive ; but a large amount of corpo- 
rate, municipal, and state indebtedness existed, 
payable in coin, and contracted previously to 1873, 
and this could now be paid only in gold. 

The entire bonded debt and the circulating me- 
dium of the United States was affected by the 
discontinuance. A large portion of the debt con- 
tracted during the rebellion called only for "dol- 
lars," and not without reason there had arisen in 
the country a considerable demand that these ob- 
ligations should be satisfied with United States 
notes, those being the kind of dollars the govern- 
ment received for the obligations. To explain the 
meaning of previous legislation, Congress in 1869 
had pledged the faith of the United States to the 
payment in coin or its equivalent of all the obliga- 
tions of the government, except in cases where 


the authorizing act expressly provided that pay- 
ment therefor might be made in other money than 
gold and silver. Subsequently only the issue of 
bonds for refunding purposes was authorized, but 
in this case the act of authorization specifically 
provided that the bonds should be redeemable in 
coin of the then existing standard value. The act 
was approved July 14, 1870, at which time the 
silver dollar had an existence in the public stat- 
utes, and of course neither the discontinuance of 
that dollar, nor the great fall in the price of silver 
bullion, was contemplated or foreseen. 

While these changes in the coinage laws were 
being made, and the relative values of silver and 
gold were so rapidly fluctuating, the country was 
employing for a circulating medium only United 
States notes and the issues of the national banks, 
and current exchanges were consequently not 
affected to any appreciable extent by the fluctuat- 
ing ratio between the two metals. Gold con- 
tinued to be employed in payment of customs 
dues and interest on the public debt as before, 
and nobody felt wronged. 

But the same class of men that had sought to 
pay the public debt in depreciated paper, and had 
been defeated by the act of 18G9, now saw another 
opportunity to lessen the obligations of the gov- 
ernment. The restoration of the silver dollar to 
the place it occupied previously to its discontinue 


ance in 1873 would at once make that dollar the 
unit of account, and as soon as a supply of the 
coins could be issued from the mint, payments on 
account of interest or principal of the public debt 
would be made in silver instead of gold dollars, a 
saving of about twenty per cent in all payments 
thus made. They asserted that no repudiation 
was involved in the transaction, silver as well as 
gold being the coin " nominated in the bond." 
Legally the position was well taken, and the gov- 
ernment had only to consider what in equity was 
due to the holders of public notes and bonds, and 
whether it could afford to take advantage of its 
technical right to pay its debt with the depreciated 
metal. The larger portion of the debt had been 
contracted when gold was the only coin in circula- 
tion, and holders of the public securities naturally 
supposed that the securities would eventually be 
paid in gold. To pay them in a cheaper metal 
would subject the government to the charge of 
a partial repudiation of its indebtedness. This 
charge would be unjust, but no explanation would 
ever fully satisfy the w T orld that the government 
had acted w r holly in good faith in thus returning 
to a silver basis to take advantage of its creditors. 
As the silver dollar had not for two generations 
formed any essential part of the metallic circula- 
tion of the country, its discontinuance attracted 
no attention for some time. Occasional mention 


of its absence was made in the public press, in 
connection with the rapid decline of the price of 
silver bullion in 1875 and 1876. No demand for 
its restoration was urged, and the question of its 
further coinage formed no part of the issues on 
which were conducted the local and national cam- 
paigns in the autumn of the last-named year. 

In the House of Representatives on March 25, 
1875, Mr. Regan had offered an amendment to a 
bill to provide for the issue of small silver coins, 
declaring that the silver coins of the United States 
of the denomination of one dollar should be a 
legal tender in any one payment at their nominal 
value, for any amount not exceeding $50. This 
amendment was agreed to. The only effect of 
the proposed change was to increase the legal 
tender power of the trade dollar, that being the 
only dollar coin either authorized or fabricated. 
But in the Senate, a month later, the amendment 
was changed so as to provide for the coinage of a 
silver dollar nine-tenths line, to weigh 412^ grains 
troy, and to be a legal tender for any amount not 
exceeding $20 in any one payment, except for 
customs dues and interest on the public debt. 
This dollar was not to be coined for depositors of 
bullion, but only upon government account, the 
profit in its issue to accrue to the public Treasury. 
Nothing came, however, of either proposition. 

The session of Congress following the presiden- 


tial campaign of 1876 was occupied principally in 
determining the succession to the Presidency, and 
pending that controversy little attention was paid 
to the monetary affairs of the country, in Con- 
gress or elsewhere. That matter settled, the pro- 
posed remonetization of the silver dollar at once 
became a disturbing element in local and national 
politics. The newly-made friends of the silver 
dollar became very numerous and unnecessarily 
noisy. They alleged that designing men had sur- 
reptitiously secured the passage of the act discon- 
tinuing that coin, although one of their number 
had in the House advocated the passage of the act, 
and especially commended the provision for such 

They attributed to the absence of the silver 
dollar the disasters following the panic of 1873, 
although up to the time of that panic, even had 
there been no adverse legislation, the dollar would 
not have appeared in circulation, owing to the 
high price of silver bullion. They euphoniously 
termed the coin the " dollar of our daddies," and 
alleged that, in discontinuing it, an indignity had 
been heaped upon the worthy founders of the 
republic, although, upon a most liberal estimate, 
an equal distribution of all such coins ever in cir- 
culation would not have given one piece to every 
ten voters when Jefferson stopped its coinage. 

In the press, on the platform, and in Congress, 


they pictured the distress the poor man hud suf- 
fered through the alleged mischievous legislation, 
and stoutly demanded the restoration of the coin 
as a panacea for all the evils, real or imaginary, 
with which the country was afflicted. With un- 
sparing epithets they denounced those who had 
invested their earnings in public securities as 
"leeches," "bloated bondholders," "vampires, flap- 
ping their dragon wings over a ruined country," 
and hinted that, unless the coin was restored to 
circulation, communism and anarchy would follow. 
One over-zealous Congressman openly asserted 
that, unless the public debt was paid in silver, he 
and his friends would rise in their might and wipe 
out the entire debt as with a sponge. 

In May, 1877, the legislature of Illinois deter- 
mined that the evils resulting from the discontin- 
uance of the silver dollar should be remedied, as 
far as within its power, and as there were no silver 
dollars in existence, and the State had no power to 
coin any, it resorted to the unhappy device of 
declaring the halves, quarters, and dimes a full 
legal tender for the payment of debts within that 
State. The measure was promptly vetoed by the 
governor, and the State was thus spared any fur- 
ther humiliation from the action of its too zealous 

The restoration of the silver dollar to its former 
place as an alternative dollar with gold was gen- 


erally demanded throughout the country, without 
distinction of party. The Republicans of Ohio, 
in convention, August, 1877, demanded the rcmon- 
etization of silver, but with coinage and valuation 
so regulated that our people should not be placed 
at a disadvantage in their trade with foreign na- 
tions, and that both metals should be kept in cir- 
culation, as contemplated by the Constitution. 
About the same time the Democrats of that State 
in convention denounced the demonetization of 
silver as an outrage upon the rights of the people, 
although no member of the convention had prob- 
ably ever seen a silver dollar at that time, except 
in a museum of curiosities, and for more than 
four years the " outrage " mentioned had been 
endured without being known. 

The Republicans of Pennsylvania, a month 
later, thought that the long and successful exist- 
ence of the double coin standard warranted them 
in demanding a repeal of the legislation which 
had demonetized silver and established "an almost 
exclusive gold standard," and a return to the free 
use and unrestricted coinage of the silver dollar, 
thus preserving the equality of the commercial 
value of the silver dollar with the gold dollar, and 
keeping both in circulation. With sop of this 
diluted character both parties fed their adherents 
through the campaigns of that year. 

The Forty-fourth Congress having adjourned 


without making the annual appropriation for the 
support of the army, President Hayes called an 
extra session of that body to convene October 16, 
1877 ; and on November 5, Representative Bland 
of Missouri, moved to suspend the rules and pass 
a bill directing the coinage of silver dollars of the 
weight of 412?r grains standard silver, as provided 
in the act of January 18, 1837, the coins to be a 
leoral tender at their nominal value for all debts and 
dues, public and private, except where otherwise 
provided by contract, and providing that any 
owner of silver bullion might deposit the same at 
the mints to be coined into such dollars for his 
benefit, upon the same terms and conditions as 
gold bullion. This was agreed to, — yeas, 164; 
nays, 34 ; not voting, 92. 

This bill, if it had become a law, would have 
restored the double standard ; and as the silver 
bullion necessary for a dollar could have been pur- 
chased in the market for eighty-five cents in gold, 
every person, corporation, or State, owing debts 
payable in coin, would have been enabled to satisfy 
such obligations at a discount of fifteen per cent 
from their face value, as soon as a sufficient amount 
of the coins for the purpose could have been put 
into circulation. 

The passage of the bill in tho House was re- 
ceived with general satisfaction throughout the 
country, the masses of the people believing that 


with cheaper money good times would come. Any 
question of political or personal integrity involved 
in the scheme was little considered. 

On November 21, in the Senate, Mr. Allison, 
from the Committee on Finance, reported the bill 
with several important amendments. The authority 
for owners of silver bullion to have dollars coined 
therefrom for their benefit was stricken out, and, 
instead, the Secretary of the Treasury was author- 
ized and directed, out of any money in the Trea- 
sury not otherwise appropriated, to purchase, from 
time to time, silver bullion at the market price, not 
less than two million dollars nor more than four 
million dollars per month, and to have it coined into 
such dollars as fast as purchased, the gain arising 
from the transaction to be paid into the Treasury. 

The bill thus amended gave to the government 
alone the right to pay coin obligations at the rate 
of eighty-five cents on a dollar, because the coins 
manufactured would be sold by the mints to other 
parties only at their face valuation in gold. 

No action upon the proposition was taken during 
the extra session. Upon the assembling of Con- 
gress in December, President Hayes in his annual 
message, recommended the limited coinage of sil- 
ver dollars of increased weight, with a proviso that 
in no case should the then outstanding public debt 
be ever paid in any coinage of less commercial 
value than the gold coin as it then existed. No 


heed was paid to his recommendations ; the Allison 
amendment was adopted by the Senate and con- 
curred in by the House, by large majorities. The 
bill was however vetoed by the President, but upon 
its return to Congress became a law February 28, 
1878, notwithstanding the veto, more than two- 
thirds of each House voting in its favor. 

Before the passage of the bill two sections had 
been added ; one directing the President, imme- 
diately upon the passage of the act, to invite the 
governments of the countries comprising the 
" Latin Union," and of such other European 
nations as he might deem advisable to join the 
United States in a conference to adopt a common 
ratio between gold and silver for the purpose of 
establishing, internationally, the use of bi-metallic 
money, and securing fixity of relative values be- 
tween the two metals, and to appoint commission- 
ers for that purpose ; the other authorized the 
holders of the silver dollars to deposit them in the 
Treasury in sums not less than ten dollars, and to 
receive therefor certificates, the coin to be held for 
the redemption of the certificates, and the certifi- 
cates to be receivable for customs, taxes, and all 
public dues, and when so received to be rcissuable. 

Under the operations of this act there has been 
coined up to June 30, 1884, an amount of $175,- 
355,829, resulting in a gain to the government of 
about $21,000,000. Of the amount coined, the 


government has sold $39,794,913, leaving in the 
Treasury vaults $135,560,916, of which amount 
outstanding certificates represent $96,427,011. 

Two monetary conferences have been held with 
no result. The government has not yet resorted 
to its privilege of paying its obligations in the de- 
preciated coin ; the mints continue to turn out the 
pieces with unabated energy, and the Treasury to 
bury them with equal diligence, no purchasers 
being found. Slowly but surely the silver dollars 
are accumulating in the moneys of the public Trea- 
sury to the displacement of notes and gold, and in 
the not distant future, should the coinage continue, 
the srovernment will have no resources with which 
to meet its obligations except these silver dollars. 



Promptly upon the passage of the act author- 
izing the issue of the silver dollar, the Treasury 
Department took steps to carry the act into exe- 
cution. The Director of the Mint caused new 
designs to be prepared for the proposed coin. 
On the one side the " emblem of liberty " required 
by law was to be represented by a female head, 
with hair in curls, and a somewhat brazen expres- 
sion of countenance, while on the reverse, in 
place of the familiar French eagle, which had been 
adopted from the arms of the Washington family, 
a new bird, having its wings pointing forward, was 
substituted — an addition to numismatic designs as 
fresh and unique as was the acquisition to natural 
history of the " Snark " and the "Boojum." 

The Treasury accepted the designs, and invited 
bids for a supply of silver from which to coin the 
pieces, and England furnished the first instalment, 
much to the disappointment of the producers of 



domestic bullion, who supposed that the effect of 
the new coinage would be to greatly enhance the 
value of their mining products. 

The mints had capacity to coin conveniently 
only the minimum amount required each month, 
but in three months a considerable supply of the 
new coins was on hand, and on June 8, 1878, the 
Treasurer of the United States offered the coins 
for sale to the public. At that time a dollar of 
the paper circulation was worth 98 cents in gold, 
while the bullion in a silver dollar was worth only 
about 83 cents in gold, but the Treasury would 
receive the coins at their face value in payment of 
customs dues, while it could not receive for that 
purpose the paper circulation at any rate. Conse- 
quently to an importer having duties to pay there 
was a profit of about two per cent in exchanging 
notes for silver dollars. As a further inducement to 
purchase, the Treasurer offered to deliver the coins 
at any national bank depository free of expense to 
the purchaser, upon the amount in notes being 
placed to his credit in the bank ; but the pur- 
chaser was cautioned not to use the coins in any 
way which would facilitate their return to the 
department in coin payments. 

On the 17th of the following month the Treas- 
urer offered to send to any national bank at the 
expense of the department any amount of silver 
dollars needed upon payment therefor in notes, 


but requested the banks to use them for any pur- 
pose other than directly for payment of coin dues 
to the government. Two days later the Treas- 
urer authorized depositary banks and sub-treasury 
officers to pay out silver dollars for any purpose in 
lieu of notes, except where the coins would be likely 
to come back to the Treasury in coin payments. 
The result was not unexpected. Nobody who 
could obtain small notes desired the heavy coins, 
and consequently but few pieces went into general 
circulation. The coins paid out came back to the 
Treasury in lieu of gold coin, at a handsome 
profit to customs brokers. 

Meanwhile certificates calling for silver dollars 
were prepared and issued by the Treasury, as 
provided by law. They, being less bulky, ob- 
tained considerable circulation, especially those 
sent to places remote from ports of entry, where 
they could not be used in paying customs dues 
calling for coin. Neither the coins nor certificates 
met with much favor from the banks in the large 
cities. On November 12, 1878, fifty out of fifty- 
eight banks, members of the New York clearing- 
house, unanimously resolved that on and after the 
resumption of specie payments, January 1, 1879, 
they would receive silver dollars upon deposit 
only upon special contract to withdraw them in 
kind, and would prohibit payments to the clearing- 
house in silver certificates, or in silver dollars, 


excepting as subsidiary coins in small sums, say 
under ten dollars. Three days later the associated 
banks of* Boston passed similar resolutions. The 
action of the banks in these two cities in discrimi- 
nating against silver was severely condemned by 
the advocates of silver remonetization, they having 
predicted for the new coin a most hearty wel- 
come ; but there was no way to control the action 
of the banks. 

Meanwhile the Treasury officials continued their 
efforts to dispose of the coins, offering to takers 
every inducement which the law would permit, 
and to November 1, 1878, of $18,000,000 coined, 
$5,000,000 was in circulation. To the same date 
silver certificates had been issued to the amount 
of $8,500,000, of which, however, there was in 
circulation only $1,500,000, the remainder having 
been paid into the Treasury in satisfaction of coin 

Public creditors, although objecting to the coins, 
have generally accepted the certificates without 
protest. These plans of getting the coins into 
circulation have been continued to the present 
time ; but with all the effort of public officials, 
and the inducements offered, which have cost the 
government large sums of money, only about 
twenty-five per cent of the amount coined has 
remained in circulation, the remainder lying in the 
vaults of the Treasury. 


By the retirement from circulation of the one 
and two dollar notes, and the forced payment to 
creditors of these coins, a considerably larger 
amount could doubtless be kept in circulation, but 
it has not been the policy of the Treasury or of 
Congress to resort to such measures. 

By an act approved July 12, 1882, Congress 
prohibited any national bank from being a member 
of any clearing-house in which silver certificates 
were not receivable in settlement of balances, but 
no bank has paid any attention to the act. The 
United States Treasury itself is in effect a member 
of the New York clearing-house, the Assistant 
Treasurer in that city making his daily settle- 
ments with the clearing-house banks through that 
agency with great convenience to public business. 
During the year ending November 1, 1883, this 
officer paid to the association in excess of the 
amount received by him, $181,728,065.15. This 
entire amount was paid in gold coin or gold certifi- 
cates, and Treasury officials can therefore but look 
with leniency upon the disregard of the law by 
the banks. 

The demand for increased currency in the West 
has offered favorable opportunities to put the sil- 
ver dollar into circulation. But events have 
proved that there is no necessity for issuing this 
coin, and a continuance of its coinage can lead to 
but one result, — the expulsion of the gold coins 


from circulation, and the substitution of the silver 
dollar as a unit of account, much to the benefit of 
railroads and other corporations having outstand- 
ing large amounts of bonded indebtedness, and 
this event cannot Ion": be deferred. 



Foreseeing the difficulties which would follow 
the attempted introduction of the silver dollar 
into the currency at the proposed fictitious valua- 
tion, Congress, in the act of 1878, which again 
authorized the manufacture of this coin, directed 
the President to invite the governments of the 
so-called Latin Union,* and such other European 
nations as he might deem advisable, to join the 
United States in a conference, with a view to the 
adoption of a common ratio between gold and sil- 
ver, " for the purpose of establishing internation- 
ally the use of bi-metallic money and securing 
fixity of relative value between these metals." 

* France, Italy, Belgium, and Switzerland had, in 1865, 
formed what was known as the Latin Union, entering into 
an agreement by which the amount of silver to be coined each 
year was fixed for each member of the Union. The coins 
were to be of like character, and to be received without dis- 
crimination throughout the Union, both on public and private 
account. Greece joined the Union in 18G8. In 1874, by mutual 
agreement, the coinage of silver was suspended throughout the 



In pursuance of these directions, the President 
invited European nations to send delegates to meet 
the delegates of the United States in Paris in con- 
ference for the purpose mentioned. The delegates 
selected, and who went to that city from the United 
States, were Hon. R. E. Fenton, Hon. W. S. 
Groesbeck, Prof. Francis A. Walker, and Prof. 
S. Dana Horton, gentlemen well known in politi- 
cal and scientific circles. 

The European nations invited who sent dele- 
gates to the convention, were Austria-Hungary, 
Belgium, France, Great Britain, Greece, Italy, 
the Netherlands, Russia, Sweden, Norway, and 
Switzerland. Germany, although invited, de- 
clined to send. 

The deleo-ates assembled in Paris August 10, 
1878, in accordance with the invitations, and Mr. 
Leon Say, the French Minister of Finance, was 
elected president of the convention. 

From the report of the proceedings it seems 
that the several nations represented in the con- 
vention were not favorably disposed to the re- 
establishment of the bi-metallic system. 

The delegation from Austria-Hungary, in which 
country depreciated paper furnished almost exclu- 
sively the circulation, defended the bi-metallic sys- 
tem, but thought its adoption by that country at 
that time could not possibly have much effect. 

The delegation from Belgium, a member of the 


Latin Union, was very unfavorable to the pro- 
posed bi-metallic system. 

France, a leading state of the Union, declared 
through her Finance Minister, the president of the 
conference, that in suspending the coinage of sil- 
ver in 1874 she did not incline to the single smld 
standard, but, on the contrary, she occupied a 
position in which she might await a favorable 
moment to re-enter the system of the double 
standard, but offered little encouragement for any 
renewal of the double system at that time. 

The delegates from Great Britain, which coun- 
try had, since 1816, maintained an exclusively 
gold standard, expressed a willingness, and even 
a desire, that other nations should maintain a 
bi-metallic system, and give to silver the greatest 
possi'^ i nlation ; but in their own country 
they said there was no disposition to use silver, 
except as a subordinate coin of a limited legal 
tender capaci y. 

The delegates from Greece appeared to be in 
sympathy with the views of France, and were 
willing to remain in a state of expectancy, hoping 
that other and greater nations might bring about 
the r< -introduction of silver. 

clegates from Italy, another member of 

Jnion, took advanced ground in defence of 

the bi-metaluc system, but the circulation of that 

country being depreciated paper, the re-establish' 


ment of silver would, they thought, be of but 
little importance, there being no demand for silver 
for circulation. 

The delegates from Holland declared that while 
England and Germany adhered to the gold mono- 
metallism, that country, standing between them 
both geographically and financially, must conform 
to their action. 

The delegates from Russia announced the inten- 
tion of that country to reserve its decision upon 
the question before the conference until such time as 
it should be prepared to resume specie payment. 

The delegates from the government- of Sweden 
and Norway announced that they had been ap- 
pointed with instructions to refrain from partici- 
pating in any measures which might compromise 
in any way the mono-metallic position of those 

The delegates from Switzerland appeared as the 
uncompromising advocates of gold mono-metallism 
for Europe. 

The Empire of Germany was not represented. 
At the second session the conference also invited 
that government to participate in its deliberations. 
This invitation, having been communicated to the 
ambassador of Germany, was declined, that na- 
tion having, after mature deliberation, but recently 
established the single gold standard. 

Upon the assembling of the convention Mr. 


Groesbeck, in behalf of the United States, stated 
the position of our government, making the fol- 
lowing humiliating confession : — 

"In 1873, in a law which did not very accurately 
carry out its purpose, silver was made to disap- 
pear through inadvertence rather than intention- 
ally, by an omission to say anything about it. As 
a matter of fact, the silver standard w T as found to 
have been suppressed. The example of Germany 
had proved contagious ; no newspaper had dis- 
cussed the question ; public opinion, "by no means 
enlightened, was, so to speak, taken unawares, 
and great surprise was felt when, a short time 
after the law was passed, the change was fully 

He closed by proposing that the conference 
should pronounce itself on the two following 
propositions : — 

" 1. It is the opinion of this assembly that it is 
not to be desired that silver should be excluded 
from free coinage in Europe and the United States 
of America. On the contrary, the assembly be- 
lieve that it is desirable that the unrestricted coin- 
age of silver, and its use as money of unlimited 
legal tender, should be retained where they exist, 
and, as far as practicable, restored where they 
have ceased to exist. 

" 2. The use of both gold and silver as unlimited 
legal tender money may be safely adopted ; first, 


by equalizing them at a relation to be fixed by 
international agreement ; and, secondly, by grant- 
ing to each metal, at the relation fixed, equal 
terms of coinage, making no discrimination be- 
tween them." 

These propositions were discussed, but did not 
become the subject of a general vote. France, 
instead of supporting the delegates from the 
United States, as would naturally be expected of 
a country having so large an interest in the rein- 
statement of silver, joined with England in pre- 
paring an answer to be made by the European to 
the American delegates, which answer was adopted, 
as follows : — 

"The delegates of the European states repre- 
sented in the conference desire to express their 
sincere thanks to the government of the United 
States for having procured an international inter- 
change of opinion upon a subject of so much im- 
portance as the monetary question. 

" Having maturely considered the proposals of 
the representatives of the United States, they 
recognize, — 

" 1 . That it is necessary to maintain in the world 
the monetary functions of silver, as well as those 
of gold, but that the selection for use of one or 
the other of the two metals, or of both simultane- 
ously, should be governed by the special position 
of each state or group of states. 


" 2. That the question of the restriction of the 
coinage of silver should equally be left to the dis- 
cretion of each state or group of states, according 
to the particular circumstances in which they may 
find themselves placed, and the more so in that 
the disturbance produced during the recent years 
in the silver market has variously affected the 
monetary situation of the several countries. 

"3. That the differences of opinion which have 
appeared, and the fact that even some of the states 
which have the double standard find it impossible 
to enter into a mutual engagement with regard to 
the free coinage of silver, exclude the discussion 
of the adoption of a common ratio between the 
two metals." 

In adopting these propositions, the delegates 
from America were treated more as messengers 
who had come across the water to submit a propo- 
sition to the conference, than as members of the 
conference and the representatives of the nation 
which had invited it. The European members 
withdrawing by themselves to vote upon the 
proposition, left the delegates from the United 
States to wait for an answer like criminals waiting 
for the verdict. 

This action closed the conference, no result of any 
value having been obtained, and the delegates from 
the United States returned home to thus report. 

For some time the matter rested, but the con- 


tinued depression of the price of silver kept the 
subject under discussion, and in February, 1881, 
the governments of France and the United States 
extended joint invitations to the European nations 
to again take part in a conference with a view to 
establishing the use of gold and silver as interna- 
tional money. 

The conference was to examine and " adopt, for 
the purpose of submitting the same to the govern- 
ments represented, a plan and a system for the 
establishment, by means of an international agree- 
ment, of the use of gold and silver as bi-metallic 
money, according to a settled relative value be- 
tween these tw T o metals." 

The conference assembled in Paris April 19, 
1881. Delegates from the nations represented in 
the previous conference were present, and in addi- 
tion thereto were delegates from Germany, British 
India, Denmark, and Portugal. The delegates 
representing the United States of America were 
Hon. William M. Evarts, Hon. Allen G. Thur- 
man, Hon. Timothy O. Howe, and Prof. S. Dana 
Ho r ton. 

Mr. Magin, the French Minister of Finance, 
was elected president of the conference. 

The sentiment in favor of a re-establishment of 
the bi-metallic system did not appear to have 
gained since the previous conference. Many of 
the delegates announced at once important res- 


ervations on their part. The delegates from 
Germany stated that between 1865 and 1870 a 
considerable quantity of gold had found its way 
into the treasury of the German Empire, and that 
that government had taken advantage of the 
occasion to firmly establish its monetary system 
upon the basis of a gold standard, and that this 
reform was now in a very advanced state. They 
also stated that there still remained in Germany 
at most only 500,000,000 marks in silver thalers, 
and declared that this reform had sensibly bettered 
the condition of the monetary circulation in Ger- 
many. Still, they had not failed to recognize the 
import of the fall of silver which had since 
occurred, and to relieve the Latin Union from 
the apprehension that this amount of marks, in 
old silver thalers, would be thrown upon the mar- 
ket as silver bullion, Germany had, in May, 1879, 
resolved to suspend its sales of silver, and they 
had not since been resumed. The delegates, how- 
ever, recognized without reserve that a rehabili- 
tation of silver was to be desired, and hoped that 
its free coinage might obtain in a certain number 
of the most populous states represented by the 
conference, but declared that Germany did not call 
for a change of system, and did not find herself in 
a position to concede the free coinage of silver. 
Still, having a disposition to assist the other 
powers which might unite for the purpose of a 


free coinage of silver at a fixed ratio with gold, 
Germany would agree for a period of some years 
to abstain from all sales of silver, and during an- 
other period of a certain duration Avould pledge 
itself to sell annually only a limited quantity, so 
small in amount that the general market would 
not be glutted thereby, and it would, perhaps, 
melt down and recoin 172,000,000 of old five- 
mark and two-mark silver pieces at a ratio between 
the two metals of about 1 to 15^, whereas the 
ratio then was 1 to 14. Stripped of all technical 
verbiage, the proposition was as if Germany 
should say, " Gentlemen of the other powers, be- 
lieving you to be in earnest in your proposition to 
establish a fixed relative value between £old and 
silver, and that value to be as 1 to 15^, Germany 
offers her prayers for your success. She will not 
herself return to the free coinage of silver, but 
she will kindly hold 2,500 tons of old silver tha- 
lers, worth now about 77 per cent of their face 
value in gold, until, in accordance with your own 
theories, by your free coinage of silver you will 
force so much of that metal into new channels of 
circulation, that its price will be enhanced, and a 
fixed relation of equal value between gold and sil- 
ver will be secured. When that time comes, we 
will unload our silver on }'ou in exchange for gold 
at a profit of 30 per cent ; and we are now pre- 
pared to discuss the details of the execution." 


The delegate of Great Britain then followed, 
staling that for more than sixty years the monetary 
system of the United Kingdom had been with gold 
as a single standard, that this system had satisfied 
all the needs of the country, without giving rise to 
those disadvantages which had shown themselves 
elsewhere, and under other monetary regulations. 
That the government of Her Majesty could not, 
therefore, take part in a conference as support- 
ing the principle of the double standard, but the 
representatives of the United States at London 
having declared that the powers represented at 
the conference reserved to themselves entire liberty 
of action after the discussion, the government of 
Her Majesty considered that it would be lacking 
in consideration towards friendly powers to persist 
in its refusal to .send a delegate from the United 
Kingdom. That thus he had come, and that he 
stood ready to furnish any information desired 
concerning the monetary system of England, but 
he was not at liberty to vote upon any proposition 
which might be submitted to the conference. 
Subsequently he presented to the conference a 
communication from the Bank of England to the 
British government, setting forth to what extent 
the bank could aid the proposed league of coun- 
tries for the rehabilitation of silver, which was in 
these words : — 

"The Bank Charter Act permits the issue of 


notes upon silver, but limits that issue to one- 
fourth of the gold held by the bank in the issue 

" The purchase of gold bullion is obligatory and 
unlimited ; the purchase of silver bullion is dis- 
cretional and limited, the distinction being en- 
forced by the necessity of paying notes in gold on 

" The re-appearance of silver bullion as an asset 
in the issue department of the Bank of England 
would, as is understood by the Foreign Office 
letter, depend entirely on the return of the mints 
of other countries to such rules as would insure 
the certainty of conversion of gold into silver, and 
silver into gold. The rules need not be identical 
with those formerly in force ; the ratio between 
silver and gold, and the charge for mintage, may 
both or either of them be varied, and yet leave 
unimpaired the facility of exchange, which would 
be indispensable to the resumption of silver pur- 
chases by a bank of issue whose responsibilities 
are contracted in gold. 

" Subject to these considerations, the Bank 
Court are satisfied that the issue of their notes 
against silver, within the letter of the act, would 
not involve the risk of infringing that principle of 
it which imposes a positive obligation on the bank 
to receive gold in exchange for notes, and to pay 
notes in gold on demand. 


rf The Bank Court see no reason why an assur- 
ance should not be conveyed to the monetary 
conference at Paris, if their lordships think it 
desirable, that the Bank of England, agreeably 
with the act of 1844, would be always open to the 
purchase of silver under the conditions above 

The proposition of the Bank Avas a worthy rival 
of that of the delegates of Germany. In sub- 
stance, the Bank proposed to accumulate silver in 
its vaults, worth in gold considerably less than its 
face value, so long as other countries than Great 
Britain would leave unimpaired the facilities of 
exchange, by which it could at any time obtain 
gold therefor, par for par, at a handsome profit. 

The delegate from Denmark stated that the 
Danish government had no intention of abandon- 
ing the single gold standard introduced into the 
country a few years before, and that he had re- 
ceived instruction on the part of his government 
to abstain from all discussion of the manner in 
which the bi-metallic system could be regulated. 

The delegate from Portugal frankly stated that 
the Portuguese monetary system then in force 
would not allow of its entry into the bi-metallic 
union then contemplated, and that he had no duty 
except to report to his government any action 
taken by the conference. 

The delegate from Kussiu declared that the 


Russian government reserved to itself entirely its 
right of opinion upon the whole matter, and in 
nothing renounced its liberty of action by reason 
of any resolution of the conference. 

The delegate from Greece stated that his coun- 
try had adopted mono-metallism, and he would 
not be able to join in any measure which might 
lead to a change in that system. 

The delegate from Austria-Hungary stated his 
attitude to be one of friendly reserve, and that, if 
he thought proper to take part in the discussion, 
it would only be to express his personal opinions. 

The delegates from Sweden and Norway an- 
nounced that their countries had adopted a mone- 
tary union based upon a single standard of gold, 
but that they had been given permission to take 
part in the discussions, and to report to their 
respective governments. 

The delegates of the Swiss Confederation an- 
nounced that they should confine themselves to 
hearing the reasons which had moved the govern- 
ments of the United States and France in calling 
the conference, but that they should not take part 
in any decision, of whatever nature it might be, 
without having first made a report to the Federal 
Council, and having received subsequent instruc- 
tions from that body. 

Notwithstanding these dispiriting responses, and 
especially those of the great powers of Germany 


and Great Britain, without whose aid there was 
no hope of securing bi-metallism, the conference 
proceeded to the discussion of the following propo- 
sitions, which had been prepared for it by a com- 
mittee of its own body : — 

"1. Have the diminution and the great oscilla- 
tions which have taken place in the value of silver, 
chiefly within the last few years, been hurtful or 
not to commerce, and consequently to general 
prosperity ? 

" Is it desirable that the relation of value be- 
tween the two metals should possess a high degree 
of stability? 

" 2. Should the phenomena referred to in the 
first part of the preceding question be attributed 
to increase in the production of silver or to acts 
of legislation? 

"3. Is it or is it not probable that, if a large 
group of states should agree to the free and un- 
limited mintage of lawful coins of the two metals, 
with full legal tender faculty at a uniform ratio 
between the gold and silver contained in the mone- 
taiy unit of each metal, a stability in the relative 
value of these metals would be obtained, which, 
if not absolute, would at least be very substantial? 

" 4. If so, what measures should be taken to 
reduce to a minimum the oscillations in the rela- 
tive value of the two metals? 

" For instance : — 


" 1. Would it be desirable to impose upon privi- 
leged banks of issue the obligation to receive, at 
a fixed price, any gold and silver bullion which 
the public might offer? 

"2. How could the same advantage be secured 
to the public in countries where privileged banks 
of issue do not exist? 

"3. Should coinage be gratuitous, or at least 
uniform, for the two metals in all countries? 

" 4. Should there be an understanding that in- 
ternational trade in the precious metals should be 
left free of all restraint? 

"5. In adopting bi-metallism, what should be 
the ratio between the weight of pure gold and of 
pure silver contained in the monetary units?" 

On these propositions a long discussion ensued, 
eliciting much valuable information, but it seemed 
to be generally conceded that without the co- 
operation of Germany and Great Britain, which 
nations had been conspicuous in declining all 
propositions with a view of countenancing any 
hopes on their part of returning to the double 
standard, the convention must ultimately fail of 
its purpose. 

As indicating more definitely the purpose of 
France and the United States, Mr. Evarts, in 
behalf of the delegates of those two countries, 
submitted, on the last day of the session, the fol- 
lowing declaration : — 


"The delegates of France and of the United 
States, in the name of their respective govern- 
ments, make the following declarations : — 

"1. The depreciation and great fluctuations in 
the value of silver, relatively to gold, which of 
late years have shown themselves, and which con- 
tinue to exist, have been, and are, injurious to 
commerce and to the general prosperity, and the 
establishment and maintenance of a fixed relation 
of value between silver and gold would produce 
most important benefits to the commerce of the 

"2. A convention, entered into by an important 
group of states, by which they should agree to 
open their mints to free and unlimited coinage of 
both silver and gold, at a fixed proportion of 
weight between the gold and silver contained in 
the monetary unit of each metal, and with full 
legal tender faculty to the money thus issued, 
would cause and maintain a stability in the relative 
value of the two metals suitable to the interests 
and requirements of the commerce of the world. 

" 3. Any ratio, now or of late in use by any 
commercial nation, if adopted by such important 
group of states, could be maintained ; but the 
adoption of the ratio of 15^ to 1 would accomplish 
the principal object with less disturbance in the 
monetary systems to be affected by it than any 
other ratio. 


" 4. Without considering the effect which might 
be produced toward the desired object by a lesser 
combination of states, a convention which should 
include England, France, Germany, and the United 
States, with the concurrence of other states, both 
in Europe and on the American Continent, which 
this combination would assure, would be adequate 
to produce and maintain throughout the commer- 
cial world the relation between the two metals 
that such convention should adopt." 

After the conference had held but thirteen ses- 
sions, upon the suggestion of the two governments 
of France and the United States, at whose instance 
it w T as convened, it adjourned to meet again April 
12, 1882. 

In submitting the proposition of adjournment, 
Monsieur De Normandie, a delegate of France, 
said : " We cannot disguise from ourselves that 
the observations just now submitted to you tend 
to nothing else than to establish, at least virtually, 
that nothing has been done here but an imperfect, 
useless, empty work." 

No further action was taken by the convention 
at this session, and, so far as known, it did not 
reassemble at the date appointed ; nor have the 
delegates from the United States ever submitted 
any report on the conference held. 

Had the proposition submitted by Mr. Evarts 
on behalf of France and the United States been 


accepted, even as a unanimous expression of the 
opinion of the entire conference, it could hardly 
have received the sanction of the United States 
government, as it fixed the ratio between sjold and 
silver at 1 to 15i. The Great embarrassment 
under which the government has labored in the 
coinage of silver since 1878 has been the lack of 
intrinsic value in that metal, eighteen ounces bein^ 
hardly equal in value to one ounce of gold, al- 
though by law sixteen ounces of it are declared 
to be equal to one of gold, and any proposition 
looking to a further reduction of the lawful equiv- 
alent would hardly be sustained, as, in such an 
event, all our standard silver dollars would be 
undervalued, and would be either melted down for 
bullion or shipped from the country. A new 
coinage of silver would result, having a dollar for 
the unit of still less value than the present one, 
which would effectually drive all the gold from 
the country and lead to endless complications, not 
to say repudiation and dishonesty. France could 
hardly consent to any other ratio than 1 to 15.V, as 
the immense amount of silver already coined and 
held in that country has been coined at that ratio. 
As the matter now stands silver is not coined 
by any European power without restrictions, and 
the effort of this government to secure unrestricted 
coinage of that metal has proved so futile, there is 
little hope of the re-establishment of unlimited 


silver at any ratio, unless happily the price of sil- 
ver bullion should advance so as to make the ratio 
what it was previous to the great depression of 
1874. So long as this country continues the pur- 
chase of silver and its coinage, even to the present 
limited amount, the nations of Europe, now bur- 
dened with silver bullion, cannot but regard our 
policy as one entirely in their interests. Should 
the government cease the further coinage of silver, 
European nations would no longer have a hope 
that the consumption of silver in this country for 
monetary purposes would be sufficient to restore 
its old value, and they would be compelled to re- 
sort to some means to secure the use of silver as 
money, or to suffer the loss which must result in 
disposing of it for bullion at present rates. The 
government of the United States, however, appears 
to be still hopeful that in some way foreign nations 
may come to its aid, and help it out of the dilemma 
into which unwise legislation has plunged it. At 
the last session of Congress an additional appropri- 
ation of $10,000 was made to enable the President 
to again confer with foreign powers, with a view 
to establishing a fixed ratio between silver and 
gold. Should a conference for this purpose be 
held, whatever may be its result, it is hoped that 
the delegates appointed will at least make a re- 
port, setting forth the results of their labors, that 
the country may know with what favor the renewed 
proposition has been received. 



Among the documents transmitted by the Sec- 
retary of the Treasury to Congress in 1870, with 
the draft of the bill proposing a revision of the 
coinage acts, was one by Prof. E. B. Elliot, of 
the Treasury Department, containing an elaborate 
discussion of the questions involved. In place of 
the then existing legal tender dollar he suggested 
the issue of a commercial dollar of nine-tenths 
fineness, and containing 25 grains of pure silver, 
being almost the exact equivalent of the silver 
contained in the old Spanish-Mexican pillar dol- 
lar, established in 1704 by a proclamation of 
Queen Anne, and declared to contain 38G£ grains. 
The draft of the bill transmitted, however, con- 
tained no provision for such a coin, but it did 
provide for the coinage, on government account, of 
a silver dollar of 384 standard grains, being equal 
to the weight of one dollar of fractional coins, 
instead of the existing dollar of 412?, grains, and 



this provision remained in the bill as it first passed 
the Senate, January 9, 1871 — the suggestion of 
coining a piece for purely commercial purposes, 
and not for circulation, receiving little attention. 
The House failed to pass the bill in any form that 
session. Secretary Boutwell, however, in his 
annual report for 1872, renewed his recommenda- 
tions for the passage of the coinage-revision bill, 
and suggested such alterations as would prohibit 
the coinage of silver as a general currency for 
the country, and also suggested that authority be 
given for the coinage of a silver dollar that should 
be as valuable as the Mexican dollar, to be fur- 
nished at cost ; and he added that the Mexican 
dollar was used in trade with China, and was sell- 
ing at a premium of eight per cent over the actual 
expense of coining. 

In May, 1872, a new Congress having convened, 
the House took up the bill and passed it as origi- 
nating in that body. The bill still provided for 
the coinage of a dollar of 384 standard grains. 
On January 7, 1873, Mr. Sherman reported the 
bill from the Senate finance committee, with cer- 
tain amendments, of which by far the most impor- 
tant was the proposition to strike out the authority 
to coin a dollar for circulation, but in place of 
the one proposed to authorize a coin for only 
commercial purposes, to be coined for private 
parties at cost. He stated in explanation that 


this dollar had been adapted mainly for the benefit 
of the people of California and others engaged in 
trade with China. The amendment was accepted 
by the House, and the bill thus amended became 
a law February 12, 1873. The amendment was 
as follows : — 

" That any owner of silver bullion may deposit 
the same at any mint, to be formed into bars, or 
into dollars of the weight of 420 grains troy, desig- 
nated in this act as trade dollars . . . and the 
charges for converting standard silver into trade 
dollars ; for melting and refining, when bullion is 
below standard ; for toughening, when metals are 
contained in it which render it unfit for coinage ; 
for copper used for alloy, when the bullion is above 
standard ; for separating the gold and silver, when 
these metals exist together in the bullion ; and for 
the preparation of bars, shall be fixed from time 
to time by the Director (of the Mint), with the 
concurrence of the Secretary of the Treasury, so 
as to equal, but not exceed, in their judgment, the 
actual average cost to each mint and assay office, 
of the material, labor, wastage, and use of ma- 
chinery employed in each of the cases aforemen- 

The name of the coin, and the manner in which 
it was to be issued, confirmed the oft-repeated 
assertions of its friends, that the coin was for com- 
mercial purposes onlv, and not intended for circu- 


lation. Through what appears to be an oversight, 
however, another section of the same law, in 
declaring what should be the silver coins of the 
United States, included the trade dollar, and 
made that coin, like other silver coins, a legal 
tender for any amount not exceeding five dollars 
in any one payment. 

Immediately upon the passage of the act, 
designs for the new coin were prepared and ac- 
cepted. On the one side was to be a left-handed 
view of the goddess of liberty, and on the other 
side the name of the coin, with the announce- 
ment that the piece contained 420 grains of sil- 
ver nine-tenths fine, surrounded with the words 
"The United States of America." Arrange- 
ments for its coinage beino; concluded, holders of 
silver bullion were notified that, upon presentation 
of it at the United States Mint in either Phila- 
delphia or San Francisco, they could obtain these 
coins in return, upon additional payment of 1| 
cents for each piece, the estimated cost of manu- 

The certificate the coin bore as to its weight and 
fineness was accepted in China and Japan without 
farther assaying or weighing of the metal, and 
the form of the metal being adapted for circula- 
tion, the coin created a new market for silver, and 
readily sold at a considerable advance above other 
forms of silver bullion. As the coin would bring 


for exportation more than a dollar in gold, there 
was no object in putting it into circulation in this 
country. But owing to the depreciation in the 
value of silver, which soon followed, it became 
of less value than the paper dollar, and eventually 
less than that of the gold dollar. 

The holders of bullion then found it more profit- 
able to put the coin into circulation in this coun- 
try than to export it, and suddenly, as if by magic, 
the coins appeared in all parts of the country, to 
the surprise of nearly everybody, as even the 
authority for its coinage was not generally known. 
It soon came into competition with the other 
dollar authorized by the same act, and holders 
were perplexed beyond measure to understand 
why the former coin, having 1\ grains more of 
silver in it than had the latter, should be a legal 
tender for five dollars onl} r , while the latter was 
an unlimited tender in the payment of all debts. 
The confusion Avas increased when they ascer- 
tained that the government sold the former in any 
amount, with only cost of coinage added, while 
it was restricted in the coinage of the latter, and 
compelled to sell it at its face value in gold, re- 
gardless of the price of silver bullion. Appeals 
for information concerning this financial puzzle 
came to the Treasury from all parts of the coun- 
try, not unfrequently accompanied by a statement 
that the information was desired to settle a wager 


as to the relative worth of the two coins. A full 
explanation was embodied in one reply, and to 
save labor this reply was printed, and thereafter 
sent to all inquirers. The letter was dated Sep- 
tember 1, 1878, and was signed by the Secretary. 
The following extract fully explains the character 
and circulation of the coin : — 

"As its name indicates, the purpose of this coin 
was for trade, not for circulation, though by classi- 
fying it with other silver coins, the law made it a 
legal tender to the amount of five (5) dollars in 
any one payment. 

" At the time of the passage of the act the ac- 
tual value of this dollar, including the charge of 
\\ cents for coinage, was a little more than $1.04 
in gold. 

"Under such circumstances there could be no 
object for the owner to put the coins into circula- 
tion, and consequently they were exported mostly 
to China, where, from lack of a circulating me- 
dium, these pieces, convenient in size, and bearing 
the guaranty of a great government as to their 
weight and fineness, obtained an extensive circula- 
tion, and created a market for the silver of the 
Pacific States, as intended by the act. 

"After a few months, however, an unforeseen 
depreciation in the value of silver bullion occurred ; 
and in the early part of 187G this depreciation 
reached such a point that one dollar in gold would 


purchase more than the necessary amount of silver 
for a trade dollar, and pay for its coinage. 

" Under such conditions, dealers in bullion found 
a profit in putting trade dollars into circulation at 
par in the Pacific States, where the currency was 
upon a gold basis ; but the coin being a legal ten- 
der for only five (5) dollars, its circulation was 
necessarily limited in amount as well as restricted 
in locality. 

rt The people of the Pacific States, however, 
objected to its use at all for circulation, and the 
attention of Congress having been called to the 
matter, on the 8th of May, 187G, Hon. Samuel J. 
Randall of Pennsylvania introduced into the 
House a bill, the third section of which repealed 
the legal tender quality of these coins. 

" On the 10th of June following, Hon. S. S. 
Cox of Xew York reported the measure to the 
House, urging its adoption. 

"No objection was raised, and it became a law 
July 22, 187G, without modification or an opposing 
voice or vote in either House, and is as follows : — 

"'That the trade dollar shall not hereafter be a 
legal tender; and the Secretary of the Treasury is 
hereby authorized to limit, from time to time, the 
coinage thereof to such an amount as he may deem 
sufficient to meet the export demand for the same.' 

"Up to that time (excepting a few days), and 
for several months thereafter, the trade dollar cost 


more than a paper-currency dollar, and conse- 
quently none of the coins got into circulation in 
other than the Pacific States. 

"Owing to the appreciation of the paper cur- 
rency, however, in the fall of 1877, the trade 
dollar became of less value than the paper dollar ; 
and in December of that year a large number of 
them were put into circulation, at their nice 
value, at a profit to the owners of the bullion." 

"Apprehensive of such misuse of the coins, on 
the 15th of October in that year I ordered the 
discontinuance of their coinage at the mint at 
Philadelphia, and four days later at the other 
mints. Meanwhile the Department, in reply to 
numerous inquiries, had uniformly stated that the 
trade dollar possessed only a commercial value, 
depending upon the price of silver bullion. 

"It will be seen that the coins were put into 
circulation months after the passage of the act 
taking from them their legal tender character, and 
mainly after their coinage had ceased. 

"But in their use as money, the Department has 
never had any interest or derived any profit. For 
the expense of their coinage the owner of the 
bullion reimbursed the government, and this ended 
the connection of the government with the transac- 
tion. At no time and on no account have they 
ever been received, or paid out, by the Treasury ; 
and it is a cause of regret that so manv of our 


people should have accepted them at their face 
value, thus enabling their owners to put them into 
circulation at a considerable profit. 

"Under date of July 25, 1878, the Director of 
the Mint published tables from which the value of 
these coins can be ascertained, and the terms on 
which they are received at the mints. He does 
not advise any one to dispose of them at such 
rates. The law under which the Department buys 
bullion with which to coin the standard silver dol- 
lar, requires the same to be bought at the market 
price, and it can purchase trade dollars only as 
bullion. Possibly in time these coins will find a 
ready market in China at nearly or quite their face 
value, for circulation as coin." 

The repeal of the law giving this coin a legal 
tender quality only added to the mystery of its 
existence. Congress could but recognize the il- 
logical position the coin occupied in the currency 
of the country. Although containing more silver 
than the standard dollar, it would not be received 
in payment of public dues, nor could the holder 
lawfully pay with it any private debt. 

There have been coined 35,959,300 of these 
pieces, of which about 6,000,000 probably re- 
main in this country. To finally dispose of the 
troublesome coins the House of Representatives, 
during the present Congress, has passed an act 
authorizing their redemption at par in gold, and 


directing their recoinage into standard dollars. 
This would doubtless relieve the circulation of 
the country from their undesired presence ; but 
the plan offers to foreign holders of these coins 
ten per cent more than would be paid to holders 
of silver bullion in other forms, and such a per- 
centage of profit would hardly fail to bring back 
to the country all the trade dollars yet in exist- 
ence. And after settling with foreign holders, at 
a profit to them of ten per cent, the government 
proposes to take out about eight per cent of the 
silver for itself, and then to sell the coins again 
to the public at par in gold ! The act sleeps in 
the Senate, and common honesty demands that 
the sleep shall be the sleep of death. 

The purpose and the result of the issue of this 
coin affords but another example of the fallacy of 
legislative acts to improve upon natural commer- 
cial laws. Authorized as an avowed agency to 
assist mining industries, the coin at first filled its 
mission satisfactorily, but events which legislators 
could not foresee have completely changed its 
original character and object, and has brought to 
its holders loss, annoyance, and confusion. The 
government should never have embarked in the 
enterprise. It departed from its proper functions 
to legislate in the interests of a few persons, with 
the result we have seen. It might as well upon a 
proper consideration have placed its stamp upon 


the ends of a pork-barrel for the pork-packer in 
Chicago, certifying that tlie barrel contained the 
lawful amount and quality of mess pork. To 
complete the illustration, it might then declare the 
barrel to be a legal tender within a prescribed 
limit ! 

What action can be taken to get rid of the 
trade dollars without doing injustice to innocent 
persons is a question whose solution Congress 
has thus far vainly endeavored to solve. Mean- 
while speculators are depressing and raising their 
price as may suit their purposes. The last of 
their schemes noted is to pass the coins in Am- 
sterdam to emigrants leaving for America. Great 
therefore will be the surprise of the worthy Hol- 
lander when, upon tendering his silver to our 
customs officials, he finds that the great Ameri- 
can Caesar does not recognize the coin, although 
bearing his image and superscription. 



Minor Coins. The act of April 2, 1792, au- 
thorized the coinage of copper cent and half-cent 
pieces, of 264 and 132 grains respectively. These 
pieces were not legal tender for any amount or 
made redeemable upon any terms. To those who 
wished for them, they were sold at the mints at 
their face value for gold or silver. Consequently 
no greater amount got into circulation than was 
required for convenience in making change, for 
which purpose they were readily accepted. In 
the following year the weight of the cent piece 
was reduced to 208 grains ; in 1796, to 168 grains, 
the half-cent suffering a corresponding reduction. 
The coinage of both pieces was discontinued by 
law in 1857, to which time they were the only 
authorized coins in circulation of less value than 
the silver half-dime. 

At the same time, to take the place of these 
worthy coins, a so-called nickel cent was author- 



izecl, to weigh 72 grains, and to be composed of 
88 per cent copper and 12 per cent nickel. This 
piece was smaller than its predecessor and less 
cumbersome, but was apt to be mistaken for the 
gold quarter-eagle, being of nearly the same diam- 
eter and thickness. It had no legal tender quality, 
and was not redeemable in any other money ; but 
it answered the purpose for which it was coined as 
well, but no better, than its predecessor. 

By the act of April 22, 1864, the coinage of 
this nickel cent was prohibited, and in its place 
one and two cent bronze pieces were authorized, 
to weigh respectively 48 and 96 grains, to be 
composed of 95 per cent copper and 5 per cent 
tin and zinc, and to be a legal tender in any pay- 
ment for 10 cents and 20 cents respectively. 
Their issue was prohibited by the act of February 
12, 1873. 

By the act of March 3, 1865, a three cent nickel 
piece was authorized, to weigh 30 grains, to be 
composed of 75 per cent copper and 25 per cent 
nickel, and to be a legal tender in any payment to 
the amount of 60 cents. The same act reduced 
the legal tender limit of the one and two cent 
coins to four cents. 

By the act of May 16, 1866, a live cent nickel 
piece was authorized, to weigh 77.16 grains, to be 
composed of 75 per cent copper and 25 per cent 
nickel, to be a legal tender in any payment to the 


amount of one dollar, and to be redeemed by the 
Treasury in national currency when presented in 
sums of one hundred dollars. 

By the act of March 3, 1871, the redemption in 
lawful money of all the above coins is provided 
for when presented in sums of twenty dollars. 

It is doubtful if any case has arisen in which 
any advantage has arisen from the legal tender 
quality of these coins, and no harm or good has 
therefore come from this endowment. The coins 
were however designed only for the convenience 
of the public in rt making change," and only this 
purpose was served until they Avere made redeem- 
able in lawful money. Taking advantage of that 
provision, banks, street-car companies, bake-shops, 
and others receivimr large amounts of minor coins 
have turned these coins into the Treasury in ex- 
change for lawful money ; and the Treasury has 
been compelled thus to receive them and then to 
reissue them to persons needing them, thus throw- 
ing upon the government a labor and expense 
which should be borne by the parties in interest. 

Fractional Silver. Half-dollar, quarter-dol- 
lar, dime, and half-dime pieces were authorized 
by the act of April 2, 1792. They were of the 
same fineness as the dollar, and of relative weight. 
They were a full legal tender in payment of debts, 
and their coinage continued after 1809, when the 
coinage of the dollar ceased ; but they were mainly 


exported, depreciated paper constituting the circu- 
lating medium of the country. 

Upon the reduction in the weight of gold coins 
in 1837, silver coins were undervalued, and the 
country consequently left without any silver for 
change, a want partly supplied by worn Mexican 
pieces. To correct this evil the act of February 
21, 1853, provided that the weight of these frac- 
tional pieces should be reduced, so that one- dol- 
lar in value should weigh 384 grains, instead of 
41 2i, making a dollar worth considerably less than 
one dollar in gold, an intentional over-valuation, 
in order that the pieces might not be melted down 
or exported. The pieces were then no longer 
coined for depositors, but on government account, 
being issued in exchange for gold, par for par, the 
profit in the coinage being turned into the public 
treasury. They were also made a legal tender 
only for sums not exceeding five dollars. Subse- 
quently a three-cent piece and a twenty-cent piece 
were authorized, but the authority for their issue 
has been discontinued. 

By an act approved June 9, 1879, the redemp- 
tion in lawful money of the silver coins of smaller 
denominations than one dollar was authorized, and 
the coins made a lc^al tender for all sums not 
exceeding ten dollars. Unexpected results fol- 
lowed the provision for redeeming these coins. It 
was supposed that the excess likely to be pre- 


sented for that purpose would be insignificant ; 
and, could the redemption have been limited to the 
coins then in the country, such would have been 
the result. 

But while the country was using fractional paper 
currency the fractional silver had been largely 
exported to Canada and the South American 
States, in which places it circulated at its bullion 
value. As soon as the government offered to re- 
deem the coins at par in gold or its equivalent, 
the holders in those countries lost no time in send- 
ing in their coins for redemption, realizing from 
the exchange a profit of not less than 25 per cent. 
The amount of about $28,000,000 of these coins 
has been redeemed and now lie in the Treasury 

Not only has the government been thus over- 
reached, but, as in the case of the minor coins, the 
public Treasury has become a distributing agent, 
but working in this case for the benefit of the 
banks, dime museums, and travelling shows in 
redeeming and redistributing these coins. As the 
coins are convertible at sight into full legal tender 
money, the limit of their legal tender quality 
becomes of no importance. 

Clearing-house Certificates. By the act of 
June 8, 1873, the Treasury was authorized to re- 
ceive United States notes on deposit from national 
banks in sums of not less than ten thousand dol- 


lars, and to issue certificates therefor, receivable 
at the clearing-house in payment of balances, 
the certificates to be payable on demand, and 
no expansion or contraction of the currency to 
arise from the transaction. Under this authority 
banks employ the public Treasury to keep them in 
notes of denominations which may suit their con- 
venience, turning into the Sub-Treasury one day 
worn notes of undesirable denominations, obtain- 
ing certificates therefor to be redeemed the next 
day in new notes of desired denominations, com- 
pelling the Sub-Treasury offices to make the 
exchange in Washington, at the expense of the 
government. No other advantage in the plan has 
yet become evident. 

Silver Certificates. These certificates, here- 
tofore mentioned, are issued upon deposits of silver 
dollars held in the Treasury for their redemption 
upon presentation. These are receivable by the 
government for any public dues, but arc not a 
legal tender for private debts. Thus far they 
have circulated at a ffold valuation ; and so long 
as the Treasury redeems any excess at a gold rate, 
they cannot fall to their true value. 

Gold Certificates. These certificates are 
issued upon the deposits of gold in the Treasury, 
and are redeemable in gold at sight. They are 
receivable by the government only for customs 
dues, and are not a legal tender for private debts. 


The Treasury has, without authority of law, re- 
cognized them as lawful reserves for national 
banks ; and for this purpose they are ever in de- 
mand. In any stringency, gold can be obtained 
for them at sight, and the banks can thus have 
available gold without cumbering their vaults 
with the heavy metal, the government kindly 
performing that function for them. Excepting for 
the resumption fund of $100,000,000, the Treas- 
ury can issue certificates for any gold it owns. 



By the r ng of the British mint in 1707 the 
pound sterling silver was valued at 4.44$ Spanish 
silver dollars, as they were then current in the 
American colonies. At that time the dollar con- 
tained 386 } grains of pure silver. Subsequent 
reductions were made in the legal weight of this 
piece, until the coinage act of 1792 fixed the 
weight at 371£ grains of such silver, at which it 
has since remained. 

The silver pound sterling, which in 1707 
contained 1719.4 grains of pure silver, remained 
unchanged until 1816, when Great Britain demon- 
etized silver, and declared in effect that the pound 
sterling or the sovereign should consist of 113 + 
grains of pure gold. Of course the value of this 
pound expressed in silver dollars would thereafter 
vary in accordance with the unceasing fluctuations 
in the relative commercial value of the two metals. 
But an official proclamation had declared the 
pound sterling equal to $4.44$ ; and in all commcr- 



cial dealings this rating continued to be mminally 
recognized until 1834, although the amount in 
dollars, where pounds were called for, would be 
calculated at an entirely different rate, and at a 
rate which changed from day to day. 

In 1834 the o;old dollar became the unit of 
value in the United States, and that unit bore 
fixed relation to the unit of value in Great Britain, 
both being of the same metal, but the pound ster- 
ling still continued to be rated at $4.44$. In 1837 
the amount of pure gold in the dollar Avas fixed at 
23.22 grains. The number of these dollars in a 
pound sterling would therefore be 4.8665, or in' 
other words the value of the pound was $4.8665, 
being 9£ per cent above the recognized value of 

Until January 1, 1873, the valuation of the 
pound sterling at $4.44$ continued to find place in 
all transactions involving the currencies of the 
two countries. The school arithmetics taught the 
value of a pound sterling to be $4.44$, but that 
the true " par of exchange " was found in this 
country by adding to that value 9^ per cent of 
itself, and that the commercial value would then 
be found by adding to or subtracting from this 
result the small percentage fixed by dealers, vary- 
ing from time to time according to the rates of 
insurance, interest, and transportation, and the 
demand for drafts on London payable in pounds 


sterling. Thus for 1G6 years the value of the 
pound sterling Avas estimated in accordance with 
the proclamation issued by Queen Anne in 1707, 
although meanwhile the silver dollar had twice 
been changed in weight, and both dollar and 
pound had been changed from silver to gold. 

This undervaluation of the pound sterling 
caused in commercial transactions only an incon- 
venience of calculation ; nobody gained anything 
by it, or lost anything except additional time con- 
sumed in arithmetical calculations. 

In computing duties on imported goods from 
England levied at a certain percentage upon their 
value at the place of shipment, customs officers, 
however, found that, reckoning the pound sterling 
at $4.44*, the government was not obtaining the 
revenue which the law evidently contemplated, 
and at the same time was discriminating in favor 
of England as against other nations sending their 
goods to this country. 

In 1842 Congress imposed a high tariff on im- 
ported goods, and, with a, view of equalizing rates 
among the different countries from which the 
goods came, determined to readjust the value of 
the pound sterling, known to be underrated. For 
this purpose an English sovereign was tested at 
the; mint, and upon the result of the test Congress 
declared the value of that pied' to be $4.84. This 
erroneous rating, evidently based upon the weight 


of a piece somewhat worn, gave more duties to 
the government, more protection to " infant indus- 
tries," and to the importer of dutiable goods from 
England another rating of the pound to confuse 
his reckonings. 

To relieve the importers and others in any way 
interested in foreign exchanges, Congress in 1872 
enacted a law declaring that the value of foreign 
coins, as expressed in the money of account of the 
United States, should be that of the pure metal of 
such coin of standard value, and that the stan- 
dard coins in circulation of the various nations of 
the world should be estimated annually by the 
Director of the Mint, and proclaimed on the first 
day of January, by the Secretary of the Treasury ; 
and that in all payments to or by the Treasury, 
where it became necessary to compute the value 
of the pound sterling, such pound should be 
deemed equal to $4.8665, and the same value 
should apply in appraising merchandise imported 
where the value was expressed in pounds or sov- 
ereigns, and that this valuation should be the par 
of exchange between the United States and Great 

The first proclamation of value of foreign coins 
was issued by the Secretary, January 1, 1873, and 
immediately thereafter quotations of sterling ex- 
change were based upon the new value of the 


This value was found by dividing the number of 
grains of pure gold in a standard sovereign by the 
number of sueh grains in a standard dollar, — a 
process so simple that the delay of forty years in 
reaching the result seems unaccountable. 

England, however, had been in this matter 
equally as dilatory as the United States. In all 
transactions involving dollars, the pound was rated 
at $4,443, and the result corrected by the per- 
centage necessary to obtain the true value. Pub- 
lished quotations of the value of American secu- 
rities in London assumed that undervaluation of 
the pound as the correct par of exchange ; and to 
the extent of the undervaluation they were mis- 
leading, except to the comparatively few who 
knew of the error so persistently maintained. 

In 1873 the Secretary of the Treasury commu- 
nicated with the proper representative of the 
Stock Exchange in London, advising him of the 
reform in this country, by which the pound ster- 
ling had come to be reckoned and quoted at its 
true value, and suggested that a corresponding 
change be made in the usage of the London Stock 
Exchange, that the value of American securities 
might be correctly published in that city. 

The matter was favorably presented to the Ex- 
change, but it met with little favor. Theerror was 
so well understood, it was alleged, that no change 
was necessary or desirable ; but finally, in the 


nature of a compromise, the Exchange adopted 
$5 as the value of the sovereign, upon which par 
future quotations of American securities would be 
published, and peremptorily closed the discussion, 
perhaps fearing an inquiry as to what process of 
reasoning had been used to obtain the result. 

To ascertain the true value in London of secu- 
rities calling for dollars, the published quotations 
of the Stock Exchange in that city must now be 
reduced in the ratio of 500 to 486.65 ; but, to 
obtain the commercial value of such securities, the 
current exchange value of the pound should be 
substituted in place of its legal value. 



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